Software stocks have gained significant investor attention since the onset of the pandemic because of a surge in demand for software products and services from businesses and individuals that needed to remain functional dodging the virus. As working and learning from home took precedence, The Trade Desk, Inc. (TTD) witnessed triple-digit gains.
This has raised the company’s valuation significantly. The stock is currently trading at a forward P/E ratio of 179.15, which is 580.3% higher than the sector average of 26.33x. However, TTD’s quarterly reports more than make up for this high valuation, as the company beat the consensus EPS estimate by 195.3% in the last reported quarter. In fact, TTD beat the consensus EPS estimates in each of the trailing four quarters, which is impressive. This, combined with several other factors, has helped TTD earn a “Strong Buy” rating in our proprietary ratings system.
Here’s how our proprietary POWR Ratings system evaluates TTD:
Trade Grade: A
TTD is currently trading above its 50-day and 200-day moving averages of $705.17 and $503.91, respectively, indicating a golden-cross uptrend. Also, the stock gained 77.5% over the past three months, indicating solid short-term bullishness.
TTD’s revenue increased 31.6% year-over-year to $216.40 million in the third quarter that ended September 2020. Net income increased 112.4% from the year-ago value to $41.20 million, while EPS rose 110% from the same period last year to $0.84. Non-GAAP adjusted EBITDA from the prior-year quarter increased to $77.20 million over this period.
TTD has launched Unified ID 2.0, a new internet identity to preserve the value of advertising while safeguarding the privacy and control settings of users. On November 2nd, Nielson joined hands with TTD to support this venture.
Buy & Hold Grade: A
In terms of proximity to 52-week high, which is a key factor that our Buy & Hold Grade takes into account, TTD is pretty well-positioned. The stock is currently trading just 1.6% below its 52-week high of $905, which it hit yesterday.
TTD’s revenue and EPS increased at CAGRs of 38.1% and 41.3%, respectively, over the past three years. Net income rose at a CAGR of 47.3% over the past three years, while leveraged free cash flow grew at a CAGR of 44.8% over this period. This has helped the stock gain 1,754.4% over the past three years.
The data driven advertising trend has been a major contributing factor to TTD’s growth over the past couple of years. The company’s proprietary technology and strategic partnership also steered its revenue and earnings forward.
Peer Grade: A
TTD is currently ranked #2 out of 96 stocks in the Software- Application industry. Other popular stocks in this space include Microsoft Corporation (MSFT), Paycom Software, Inc. (PAYC), and Zendesk, Inc. (ZEN).
MSFT, PAYC, and ZEN have gained 37.1%, 57%, and 71.4% year-to-date, respectively. This compares to TTD’s 242.7% return over this period.
Industry Rank: B
The Software Application industry is ranked #28 out of 123 industries in the StockNews.com universe. It is one of the few industries that benefited from the pandemic, as the demand for software services peaked during the remote working period. Cloud-based platforms and services witnessed surging demand, as they facilitated working and learning from home. This growth momentum is expected to continue well into 2021, as the second wave has called for fresh lockdowns in many countries.
Overall POWR Rating: A (Strong Buy)
TTD is rated a “Strong Buy” due to its solid short-and-long-term bullishness, impressive financials and growth momentum, as determined by the four components of the POWR Ratings.
TTD is well-positioned to benefit from the continuing pandemic, as its services remain highly in demand for a smooth remote working experience. Also, as organizations are focusing on shifting their workload to cloud based infrastructure permanently, TTD is poised to gain from this trend in the long run.
TTD has an average broker rating of 1.63, indicating favorable analyst sentiment. Out of 19 Wall Street Analysts that cover the stock, 8 rate it “Strong Buy.” The consensus EPS estimate of $1.83 for the quarter ending December 2020 indicates a 22.8% improvement year-over-year. The consensus revenue estimate of $291.62 million for the ongoing quarter indicates a 35% rise from the same period last year.
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TTD shares were trading at $861.12 per share on Wednesday afternoon, down $29.01 (-3.26%). Year-to-date, TTD has gained 231.48%, versus a 15.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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