Trade Desk (TTD) has been in the news of late. The stock declined more than 25% in a single day following the company's latest earnings report. The question is whether investors overreacted or whether the recent drop is justified?
TDD's latest earnings report revealed the company has achieved nearly 40% year-over-year revenue growth. But unlike most other tech companies, TTD has zero debt. TTD is also in a favorable position because it has just less than $680 million in cash and investments on hand.
TTD's stock dipped 50% below its yearly high, meaning this could be a fantastic buying opportunity for investors who have been patiently waiting on the sidelines. So, is now the time to pick up shares of the advertising platform company’s shares at an attractive price? We answer this question below.
Click here to check out our Software Industry Report for 2021
TTD Background and Points of Note
The Trade Desk operates a self-service platform that enables ad buyers to purchase and manage data-driven digital advertising campaigns using their own teams in the United States, Europe, Asia, and Australia. Its platform allows clients to manage integrated advertising campaigns in various advertising formats, including display, video and social, and on a multitude of devices, including computers, mobile devices and connected TV.
TTD makes money through its cloud-based platform that empowers ad buyers to make the most of their limited marketing budget. In short, TTD facilitates much easier display of clients’ strategic advertisements to target audiences.
The comp any is still trading at an 85.54 forward P/E ratio. This is an elevated ratio, especially because TTD recently suffered a considerable decline following its latest earnings report. However, TTD executives provided strong guidance for the coming quarter. Company executives also announced a 10 for 1 stock split. The positive news didn't impress investors because expectations for TTD were sky-high after shares soared 300% in the prior year when money poured into advertising technology.
TTD has a 2.47 beta, meaning it will likely prove volatile as the market continues to fluctuate. Though there is certainly the potential for the market to settle down in the months ahead as some semblance of normalcy returns, there is also a good chance the market roller coaster continues until the pandemic comes to a complete end.
TTD According to the Analysts
The analysts are not bullish on TTD. If the stock meets analysts' expectations in terms of the average target price, it will have declined by more than 2%. If analysts are not bullish on TTD, there is no reason one should establish a position in the stock. However, analysts might change their tune if TTD continues to decline following its latest earnings report. So, one should keep a close eye on the analysts’ predictions for TTD moving forward and adjust one’s perspective in accordance with those updates.
TTD POWR Ratings
TTD has Bs in the Quality and Growth components of the POWR Ratings. Click here to learn more about how TTD fares in the remainder of the POWR Ratings components.
Though TTD’s B component grades noted above indicate the stock has some merit as a potential investment, TTD has an overall POWR Rating grade of C. The stock’s POWR Rating Stability and Value components have D grades because of its recent post-earnings retreat.
To provide investors with more context, we must gauge TTD's merit compared to other the stocks in the D-rated Software - Application space. TTD is ranked 45th of 125 stocks in this segment. Investors can learn more about stocks in the Software - Application space by clicking here.
The bottom line
TTD has a C POWR Rating grade, meaning it is a Hold. Scooping up shares of a stock with a C POWR Ratings grade does not make sense when stocks with A and B POWR Ratings grades are available. TTD’s D Stability POWR Ratings component grade is especially concerning. So, we think investors should not invest in TTD until the stock’s rating improve to a B or A overall POWR Rating grade along with at least a C or B Stability component grade.
Click here to check out our Software Industry Report for 2021
TTD shares were trading at $517.10 per share on Friday morning, up $23.60 (+4.78%). Year-to-date, TTD has declined -35.44%, versus a 11.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.
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