Demand Media (DMD): Zacks Rank Buy

Zacks

Demand Media (DMD) has improved to a Zacks #1 Rank (Strong Buy) after estimate move dramatically higher.

Company Description

Demand Media creates and monetizes in-demand and long-lived content formats. The company's content and media services include creating media content primarily consisting of text articles and videos, and delivering together with its social media and monetization tools to the company's owned and operated, and network of customer Websites. The company deploys its content and media platform to its owned and operated Websites, such as eHow.com, LIVESTRONG.com and Cracked.com, as well as to Websites operated by its customers, including USATODAY.com. Demand Media, Inc.'s registrar service offering provides domain name registration and related value added services, such as third-party Website security services, identification protection services, Web hosting plans, customizable email accounts, and business listing services to resellers, including small businesses, e-commerce Websites, Internet service providers, and Web-hosting companies, as well as to consumers. Demand Media was founded in 2006 and is headquartered in Santa Monica, California.

Demand Media Meets or Beats Estimates in Four Straight Quarters

Demand Media topped the Zacks Consensus Estimate in two of its last four quarters. The other two quarters saw the company meeting the Zacks Consensus Estimate. The March 2012 quarter saw EPS of $0.02, one cent ahead of expectations for a 100% positive earnings surprise. The September 2011 quarter was an even larger beat, as the company reported a loss of $0.02 when analysts were expecting a loss of $0.04.

The December 2011 quarter was in line with the Zacks Consensus Estimate as was the June 2011 quarter.

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Demand Media Most Recent Reported Earnings

On May 8, 2012 Demand Media reported revenue of $86.2 million up from $79.5 million reported in year ago quarter, an increase of 8%. Adjusted earnings per share came in at $0.07 compared to $0.06 in the year ago period, an increase of 17%. The improvement in earnings helped the stock increase $0.64 during the trading session following the release, or an increase of 8%.

Demand Media Sees Estimates Moving Higher

Estimates for Demand Media have been rising of late. In the last 30 days, the Zacks Consensus Estimate for 2012 has increased from $0.09 to $0.12. That translates to an impressive 33% increase.

The Zacks Consensus Estimate for 2013 has seen a similar increase over the same time period. Thirty days ago the consensus was calling for $0.17 and has since moved to $0.23.

The implied earnings growth rate is significant for Demand Media, as analysts are calling for growth of nearly 100% from 2012 to 2013.

Valuation

Demand Media valuation metrics skewed a little due to its prior history of money losing quarters. The forward PE of almost 23X is something that many aggressive growth investors are comfortable with. The price to sales ratio of 2.4x is below the market standard of 3x. The price to book multiple is low enough to attract value investors at 1.8x and that translates to $5.31 per share in book value. Cash per share is also at a high level of $1.14 given that the stock is in the single digits.

The Chart

A quick look at the chart shows Demand Media shares in high demand at the end of April. The stock has also bucked the downward bias the rest of the market has been experiencing in the month of May. Having recently crossed the 200 day moving average and sporting an attractive valuation, Demand Media is a Zacks #1 Rank (Strong Buy).

Demand Media - ticker DMD  >

Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service

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