Shares of sell-side advertising platform PubMatic (NASDAQ:PUBM) plummeted 42.5% in May, according to data provided by S&P Global Market Intelligence. The company was only down slightly following earnings results in mid-May, which hardly accounts for the stock’s subsequent rapid descent. Rather, it seems this big drop needs to be kept in context of how the stock has performed so far in 2021. Here’s why.
It’s hard to find an easy explanation for why PubMatic stock was down in May. After all, the only news the company had seemed to be good news. The company reported financial results for the first quarter of 2021 on May 13, beating expectations and raising full-year guidance. Moreover, of the analysts tracked by third party TipRanks, all believe the stock is going higher — the lowest price target is $43 per share, implying better than 50% upside from where the stock trades today.
However, zooming out to the beginning of 2021, we see that PubMatic stock was up roughly 150% early in the year before settling back down to where it trades now — roughly the same price per share as where it traded at the start of the year. In fairness, while the company has performed well in its brief time on the public market (the company went public in late 2020) there’s no good reason for the stock to have been up as much as it was in such a short period of time.
Saying PubMatic stock was down 43% for May sounds like something is broken with the business. But it’s much more reasonable to say PubMatic stock is flat for the year. The stock market is simply volatile in the short term and I believe this is how investors should contextualize the move in May.
Fortunately for long-term investors, PubMatic stock has fallen to a more reasonable level and I believe it has market-beating upside from where it trades today. As already alluded, the company raised its full-year 2021 revenue guidance to between $195 million and $200 million, which would be good for 31% to 34% growth from 2020 — a great organic growth rate. Furthermore, the company is well positioned as consumers continue to shift toward streaming video, which should provide a growing market opportunity for years to come.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.