Will DoubleVerify form handle to offer early buy opportunity?

Key Points

• DoubleVerify has been forming the right side of a base since late October and may form a handle.
• Analysts expect triple-digit earnings growth in 2023.
• Analysts' earnings forecasts for DoubleVerify were recently revised higher. 

Digital media analytics specialist DoubleVerify Holdings Inc. NYSE: DV may be approaching an early buy point in a cup-shaped pattern.

The stock has been forming its base since pulling back from a July 31 high, as you can see on the DoubleVerify chart. 

That chart offers a valuable lesson in stock analysis: DoubleVerify gapped down nearly 15% despite beating net income and revenue views, which you can see using the DoubleVerify earnings data. Investors didn't like the company's plans to acquire AI-driven ad specialist Scibids Technology in a cash-and-stock deal valued at $125 million.

It's not unusual for investors to punish a stock for making an acquisition. In this case, investors appeared to be shocked at the deal price. But since then, they have become convinced of Scibids' contribution to DoubleVerify's future results.

After its most recent earnings report, DoubleVerify began trending higher; the stock rallied 19% in November and another 14% in December. 

DoubleVerify bounced back strong

That's the lesson in chart analysis: Whenever a stock gaps down hard, it's not unusual to think it's down and out for the count. 

But as the DoubleVerify analyst forecasts show, Wall Street has a consensus view of "moderate buy" on the stock, with a price target of $40.82, an upside of 8.03%. 

Analysts expect the company to earn 70 cents a share once 2023 wraps up. That would be an increase of 180% over 2022. That forecast was revised higher recently.

Wall Street expects earnings to grow by another 13% in 2024, another increase in the consensus estimate. 

DoubleVerify updated its earnings forecasts to include the impact of the Scibids acquisition. 

Enterprise software stocks among market leaders

Enterprise software makers have been leaders among technology stocks. AppLovin Corp. NYSE: APP, Atlassian Corp. NASDAQ: TEAM, HubSpot Inc. NYSE: HUBS, Lightspeed Commerce Inc. NYSE: LSPD and C3.ai NYSE: AI are all leaders in the broader industry. 

DoubleVerify provides data analytics for digital advertisers to help measure whether a digital ad is displayed in a fraud-free, brand-suitable environment and is fully viewable in the intended geography. In other words, TV ads are often targeted much more narrowly than in the past; that's where DoubleVerify's services come in.

The company provides measurement services for TikTok and also has partnerships with Alphabet Inc. NASDAQ: GOOGL and Meta Platforms Inc. NASDAQ: META. 

In the third quarter, the company launched viewability and invalid traffic measurements across YouTube Shorts. It also expanded its TikTok partnership.

Short-form video as growth driver

"Short-form video was a key driver of our third-quarter social revenue growth as existing users of DV social solutions leveraged DV's new short-form video verification tools across global campaigns on Meta Reels, YouTube Shorts and TikTok," CEO Mark Zagorski said in the third-quarter earnings call. 

He added that the company expects social to be an important driver of measurement growth over the near, medium and long term as it expands coverage across formats and geographies.

That fast growth shouldn't be particularly surprising, given that DoubleVerify is a relatively new company, having gone public in April 2021. Companies in their first few years of being publicly traded are often among the market's fastest gainers. Frequently, these new companies hail from the tech sector, which is home to fast-growing stocks with high-demand products and services.

This brings us back to the DoubleVerify chart and a potential early entry. The stock began shaping the right side of its current base in late October, in tandem with the SPDR S&P 500 ETF Trust NYSEARCA: SPY, although with a market capitalization of $6.438 billion, it's too small to be part of the S&P 500. 

Stock may form a handle

The stock is currently positioned to form a handle to the current cup formation, which may offer an early buy opportunity. 

A handle formation is characterized by a gradual, downward-sloping consolidation after an initial run-up. It typically takes place over at least five sessions, occurring when some holders take profits after that recent rally.

While DoubleVerify is not yet forming a handle, watch for that to happen because it could offer an entry point ahead of the previous high of $42.51 from July 31.