The TRMR share price looks cheap. I’d buy the stock

The online advertising market is booming and, as it continues to expand, TRMR’s share price growth could just be getting started.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Tremor International (LSE: TRMR) share price has jumped 540% over the past 12 months. While past performance should never guide future potential, I think the stock still looks cheap despite this gain.

The TRMR share price outlook 

Tremor International is a global leader in advertising technologies. Its primary focus is video advertising and it works with some of the world’s largest publishers, brands and advertisers

Over the past 12 months, demand for online advertising has boomed, and Tremor has reaped the benefits. In its latest trading update, the firm announced that revenues in its fiscal first-quarter would range $55m-$60m. That is up from $32.1m a year earlier. 

Programmatic net advertising revenues are expected to grow 84-95% year-on-year. With its top line set to nearly double in the first quarter, management has forecast underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $25m-$28m for the period, up from last year’s figure of $0.5m.

I think these figures illustrate clearly why the TRMR share price has performed so well over the past year. I also think the group’s growth is only just getting started. 

Booming market

According to estimates, the global online advertising market is projected to grow at a compound annual rate of 21% to nearly $1trn by 2025

The company’s current revenue figures suggest turnover could total $240m for 2021. This implies the group has only a minuscule share of the global online advertising market. With this being the case, I think it could have the potential to double, or even triple, its market share over the next few years. 

Still, I think it’s unrealistic to claim that Tremor has the potential to double its revenues every year going forward. The company could achieve this goal, but it’s improbable.

Instead, I think it’s more reasonable to say the business’s revenues will grow at least in line with the market. That implies annual revenue growth of around 21%.

Of course, this is just a projection. Tremor may outperform or underperform these figures. There’s no way of telling.

Large risks

The most considerable risk the company faces is competition from larger American rivals. Advertising market giants such as Facebook could quickly overwhelm the business if it wanted to grab its share of a particular market. This is a challenge management is always going to have to deal with, so that’s something I’ll be keeping an eye on going forward.

Another risk the company may have to deal with includes potential regulations on the gathering and use of data, which many online advertising businesses rely on to serve ads to the correct customers.

Nevertheless, despite these significant risks, based on Tremor’s existing size and the potential for growth over the next few years, I believe its share price looks cheap at current levels. Therefore, I would buy the stock for my portfolio today as a long-term growth investment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Facebook. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

5,000 shares of this UK dividend stock could net me £1,700 a month in passive income

Our writer calculates the passive income he could earn from holding a significant number of shares in this powerful dividend-paying…

Read more »

Investing Articles

9.3%+ yields! 3 FTSE 100 dividend giants to consider buying

Our writer examines a trio of high-yield FTSE 100 shares and explains some of the opportunities and risks he sees…

Read more »

Investing Articles

As the Kingfisher share price drops on Budget fallout, should I buy?

The Kingfisher share price was on a strong 2024 run until the DIY group warned us of the possible effects…

Read more »

Investing Articles

2 passive income shares to consider for December 2024 onwards?

These are popular UK shares investors often buy for passive income from dividends, but are they actually good investments now?

Read more »

Young black woman using a mobile phone in a transport facility
Investing For Beginners

Down 34% in a month, is this FTSE 100 stock going to be demoted?

Jon Smith flags a FTSE 100 company with a recent poor performance he believes could see it soon drop out…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Is the Diageo share price set to make a stellar comeback in 2025?

Harvey Jones thought the Diageo share price looked good value when he bought it after last year's profit warning, but…

Read more »

Investing For Beginners

It’s down 50%. Would it be madness for me to buy this value stock?

Jon Smith notes down a household value stock in the FTSE 250 that he thinks can rally in the long…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

Up 70% and 80%! I’m thrilled I bought these two red-hot UK stocks exactly 1 year ago

Harvey Jones bought two UK stocks at the end of November last year, and both have smashed the market in…

Read more »