The Trade Desk (NASDAQ:TTD) stock has been one of the hottest stocks all year long, with the shares of the programmatic-advertising leader rising more than 150% in 2020 at one point.

This red-hot rally by TTD stock has run into some resistance recently, with the shares dropping 10% in mid-October. The retreat came after KeyBanc analysts downgraded Trade Desk to “sector weight” in a call that looks mostly tied to valuation. The firm wrote, “While we remain bullish on TTD’s long-term positioning, even digital acceleration has limits to multiple expansion.”

That’s a good call. Trading at $675, Trade Desk was overvalued.

But now that the stock has crashed into correction territory, its valuation is no longer very excessive. Meanwhile, the company’s growth outlook remains as robust as ever. That’s because the expansion of  data-driven digital advertising remains as strong as ever.

As a result, it’s time to start thinking about buying TTD stock on weakness.

The Trade Desk Is a Winner

There’s no doubt about it. The Trade Desk stock is a long-term winner because the company offers a best-in-breed solution in an emerging, hypergrowth market.

Specifically, The Trade Desk sells a demand-side, data-driven ad-tech platform which enables ad buyers to leverage big data to optimize, automate and accelerate their ad spending. With this platform, there’s no more guessing and checking and no more gut decisions or long human-to-human negotiations.

There are just computers and algorithms, and using data to dynamically, efficiently and automatically allocate ad spending.  Consequently,  ad buyers get the most bang for their buck.

Data-driven advertising is the future of advertising. The Trade Desk offers the best demand-side platform in this market.

It doesn’t take a rocket scientist to connect those dots.

As data-driven advertising becomes ubiquitous across the trillion-dollar ad industry over the next several years, The Trade Desk’s ad revenue and profits will march way higher, while this $30 billion ad tech company will become increasingly valuable.

So, all in all, TTD stock is a long-term winner.

Valuation Was a Concern

In this frothy market, long-term winners are frequently sprinting into overvalued territory.

TTD stock did that in October.

The stock rattled off 14 consecutive green days in the first two weeks of October, and its shares charged from $500 to nearly $700 during that stretch. That’s a huge move. For perspective, to go from $300 to $500, it took TTD stock three months.

Up near $700, TTD stock was very clearly overvalued and overbought.

But the shares have come crashing down from those elevated levels, and TTD stock price closed at $600 on Friday. If this selloff continues and the shares fall back towards $550,  then a golden buying opportunity will emerge.

Look to Buy the Dip Soon

My estimates indicate that TTD stock is worth about $600 today. That valuation is based on a few critical assumptions, including:

• Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) continue to dominate the digital-ad market and, by extension,  continue to dominate the buy-side ad tech market.
• Of the roughly 30% of the digital-ad market not controlled by those giants, The Trade Desk remains a top buy-side ad tech provider, controlling about 10% market share of “open internet” advertising at scale.
• The amount of gross ad spending that goes  through TTD rises from about $3 billion in 2019 to over $25 billion by 2030.
• The firm’s revenue rises to $5.5 billion by 2030 (from $661 million in 2019), while its earnings per share soar towards $36.
• Based on a forward price-earnings multiple of 35 and an 8.5% annual discount rate, those estimates yield a 2020 price target for TTD stock of about $600.

From a fundamental perspective, then, investors should buy the shares below $600.

The stock’s next line of technical resistance is at $550. I suspect that resistance will hold because the stock is fundamentally undervalued at those levels and because the macro and market environments remain favorable for digital growth stocks like Trade Desk.

As a result, I’d look to start buying TTD stock around $550.

The Bottom Line on TTD Stock

Trade Desk is a long-term winner that got too hot for its own good in October.

The stock is now resetting. Let the reset happen, and let the valuation drop into more favorable territory. Then let technical resistance  end the decline.

Then buy the shares  because over the long-term, this stock is only going way higher.