For years, programmatic advertising leader The Trade Desk (NASDAQ:TTD) has been one of the hottest stocks on Wall Street as investors have grown increasingly bullish on the shift toward data-driven advertising strategies. But, this hot streak in TTD stock has hit some resistance recently, with shares plunging 15% over the past month.
Nothing in particular. There has a been a subtle shift in the past 30 days out of 2020’s biggest winners (i.e. growth stocks, momentum stocks, tech stocks, etc). TTD stock has been hurt amid this shift.
Outside of that, nothing fundamental has changed for The Trade Desk. This is still a hypergrowth technology company at the epicenter of the enormous data-driven advertising megatrend.
All that’s changed is the stock price. TTD stock is now undervalued, oversold and in a great optical position to rebound in a big way over the next few months.
In other words, recent weakness in The Trade Desk stock is nothing more than a golden buying opportunity.
Take advantage of it.
TTD Stock Is Undervalued
The long-term, big-picture bull thesis on TTD stock is very simple.
Advertising is getting automated. In the old days, ad spending decisions were made by humans leveraging their guts and experience to make educated guesses. It was a long, arduous, timely, costly, and ultimately inefficient process.
Nowadays, ad spending decisions are increasingly being made by AI algorithms leveraging dynamic data to make instantaneous spending decisions. This new era of data-driven advertising represents a vast improvement over the old model. The ads are better and more relevant. They get in front of the right audience, at the right time. Human error is removed. It’s faster and cheaper. It’s ultimately far more efficient.
Consequently, we are seeing this huge shift play out from old-school advertising to data-driven advertising.
The Trade Desk is at the epicenter of this shift, providing a technology platform which creates the AI algorithms that enable data-driven advertising. Importantly, because algorithms are only as good as the data that informs them, The Trade Desk — as the first-mover in this space with tons of data — has created a competitive advantage for itself with the industry’s best AI algorithms.
This data advantage is enduring.
As such, The Trade Desk projects as the technology backbone of the data-driven advertising shift for the foreseeable future. This attractive positioning should enable the company to remain in hypergrowth mode for the next few years.
My numbers say that, thanks to all of this hypergrowth potential in the data-driven advertising megatrend, TTD stock is worth more than $900 today, based on the company’s long-term profit growth potential.
Thus, below $800 today, TTD stock is fundamentally undervalued.
Oversold Conditions Imply a Near-Term Bottom
Fundamentals are only one piece of the puzzle when it comes to stocks.
Fortunately, the other two pieces — technicals and optics — both look good for TTD stock, too.
On the technical front, the recent plunge has sent TTD stock into oversold territory which history says is now close to a bottoming point.
Specifically, amid its huge uptrend over the past three years, TTD stock has corrected several times. In early 2018, from $60 to $45. In late 2018, from $140 to $100. Also in May 2019, August 2019, and September 2020. Each time — excluding the early 2020 sell-off, which was driven by Covid-19 fears — the sell-off ended roughly once TTD stock dropped 10% below its 50-day moving average.
The 50-day moving average today is around $800. It’s still climbing. Within the next few days, it will climb towards $820. A 10% haircut on that equals $740.
In other words, history says this sell-off in TTD stock will bottom soon — somewhere in the mid-$700-range.
Given the strong fundamentals, I suspect history will “hold up” here, and that TTD stock will indeed bottom close to its current levels.
Strong 2021 Optics Imply a Quick Turnaround
The optics for TTD stock heading into 2021 are very strong, and broadly imply that this sell-off will quickly turn into a rally.
The Trade Desk is an advertising technology company. They make money when other companies spend ad dollars. Ad spending dropped in 2020 amid social and economic uncertainties caused by Covid-19.
But those uncertainties have been easing for several months now, and will ultimately pass in 2021 as Covid-19 vaccines are widely distributed. The world will increasingly normalize. Ad spending will bounce back.
I’m not alone in this thinking. Almost all major ad firms out there see ad spending rebounding in a big way in 2021. Magna sees global ad spending rising 7.6% in 2021, after a 4.2% drop in 2020. Zenith projects that 2021 ad budgets will rise 5.6%. GroupM is the most optimistic of the bunch, pegging 2021 ad spending growth north of 10%.
Against this backdrop of rebounding ad spend, The Trade Desk’s growth rates will look very good in 2021. So long as those growth rates continue to look good, the uptrend in TTD stock will remain in-tact.
Bottom Line on TTD Stock
The Trade Desk stock is a long-term winner. The recent 20% plunge is near-term weakness.
What do we do when long-term winners suffer from near-term weakness?
We buy the dip. Once the coast is clear — meaning once technical support shows up and the optics improve.
For TTD stock, that’s happening right now, so the time to buy the dip in TTD stock is, well, right now.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
The New Daily 10X Stock Report: Dozens of triple-digit winners, peak gains as high as 926%… 1,326%… and 1,392%. InvestorPlace’s bold new initiative delivers one breakthrough stock recommendation every trading day, targeting gains of 5X… 10X… even 15X and beyond. Now, for a limited time, you can get in for just $19. Click here to find out how.
In addition, you can sign up for Luke’s free Hypergrowth Investing newsletter. Click here to sign up now.