Shares of The Trade Desk (NASDAQ:TTD) have been on fire since the novel coronavirus stormed into our lives. Granted, TTD stock was doing well before 2020 too, but seeing the way it has traded since the pandemic hit is truly astonishing.
The stock bottomed around $136 in March before exploding to more than $900 in December.
However, since hitting those highs TTD stock has been under pressure. Shares fell 24% from peak to trough after declining in seven of the nine trading sessions following its all-time high. Now consolidating, Trade Desk is worth a shot.
The company is founder-led by Jeff Green, who has proven his dominance in the field. The Trade Desk offers a marketplace for digital advertising. It’s riding trends in digital ads in social media and online, but also on connected TVs. It’s operating all over the world — including in China, where many big U.S. tech names are barred from operating.
This company’s runway is very, very long.
Breaking Down The Trade Desk
Right off the bat, what I love about Trade Desk is that it’s profitable. There are a number of tremendous growth companies out there — and TTD stock is one of them — but several of these operate at a loss and with negative cash flow.
Not The Trade Desk.
This company has top- and bottom-line momentum and that’s true with or without the novel coronavirus. Last year, Trade Desk earned $3.69 a share, while analysts expect the company to earn $4.98 per share this year.
That’s 35% growth, although current estimates call for essentially flat earnings growth in 2021. That may very well prove conservative, but in reality, this isn’t a profit story yet. This is still a revenue story.
The Trade Desk is forecast to grow revenue 22% this year to $802.6 million, followed by 35% growth in 2021 and 28% growth to $1.43 billion in 2022.
It’s clear that The Trade Desk’s business has serious momentum. Personally, I believe that digital advertising is set for a massive shake-up in the coming quarters and years. Jeff Green’s company is going to find itself properly positioned, taking large chunks of market share and laughing all the way to the bank.
That said, it’s not as if Wall Street hasn’t taken notice. Admittedly, this company flew below the radar for a while, but no longer. That’s not only indicative of the stock’s large gain, but also the fact that TTD stock trades at almost 40 times 2021 revenue estimates.
Even if the company’s outlook were to blow estimates out of the water, this stock still isn’t cheap. For that, there is no remedy.
Trading TTD Stock
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What do I mean by that, that there is no remedy? Simply put, expensive stocks can get more expensive down the road. TTD stock wasn’t necessarily cheap a year ago at around 20 times forward revenue estimates. Although in hindsight it certainly seems cheaper.
The reality is, valuation doesn’t seem to matter on the way up. Only once the company starts to hit a few bumps does Wall Street start to critique the valuation. That said, TTD stock isn’t cheap, and perhaps that will force the stock to digest a bit. As bulls, we can only hope that’s the case.
In November the company blew out earnings, sending shares gapping higher and ultimately surging toward $1,000. In the process, TTD stock cleared the 423.6% extension from the Q1 2020 range.
Now consolidating those gains, investors have had an opportunity to get into this name. From here, more consolidation wouldn’t be a bad thing. It will let the company grow into its valuation and it will give investors more time to accumulate the stock.
Even a dip down to the gap-fill level near $665 and a test of the 200-day moving average would be good for both the stock and its investors.
However, should we get another bullish earnings reaction, I don’t think we can rule out a move to $1,000 and beyond.
The Bottom Line on TTD Stock
Sometimes you just have to plug your nose and get long. This company is profitable. It’s growing sales at a 30%-plus clip, is free cash flow positive and sports close to a 20% profit margin. Further, margins have been expanding, while the balance sheet is pristine.
While TTD stock doesn’t boast a boatload of cash, it sits at a comfortable ~$550 million, with total debt of just $72 million.
The bottom line is pretty simple: The Trade Desk is a buy, it’s just a matter of being comfortable when you do it. At this point, the stock’s only criticism is its valuation.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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