What a brutal six months it’s been for Magnite. The stock has dropped 26.9% and now trades at $13.38, rattling many shareholders. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Given the weaker price action, is now the time to buy MGNI? Find out in our full research report, it’s free.
Why Are We Positive On MGNI?
Born from the 2020 merger of Rubicon Project and Telaria, Magnite (NASDAQ: MGNI) operates the world's largest independent sell-side advertising platform that automates the buying and selling of digital advertising inventory across all channels and formats.
1. Skyrocketing Revenue Shows Strong Momentum
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Magnite grew its sales at an incredible 26.4% compounded annual growth rate. Its growth surpassed the average business services company and shows its offerings resonate with customers.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Magnite has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 27.1% over the last five years.
3. New Investments Bear Fruit as ROIC Jumps
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Magnite’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.
Final Judgment
These are just a few reasons Magnite is a high-quality business worth owning. After the recent drawdown, the stock trades at 11.8× forward P/E (or $13.38 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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