The Trade Desk Inc. (TTD - Get Rating) in Ventura, Calif., operates a self-service cloud-based platform that enables buyers to create, manage, and optimize data-driven digital advertising campaigns across various ad formats and channels, such as display, video, audio, native, and social, on a variety of devices, including computers, mobile devices, and connected TV.

The company’s shares have surged 26.8% in price over the past month on the back of the company exceeding consensus estimates and delivering an upbeat outlook in its last reported quarter.

The stock has declined 22% in price over the past three months, however. In addition, closing yesterday’s trading session at $82.82, it is currently trading 27.4% below its 52-week high of $114.09, which it hit on Nov. 17, 2021.

Here’s what could shape TTD’s performance in the near term:

Stable Financials

TTD’s revenue increased 23.7% year-over-year to $395.59 million for the three months ended Dec. 31, 2021. Its cash and cash equivalents grew 72.4% for the year ended Dec. 31, 2021, to $754.15 million. And its non-GAAP net income rose 12.6% from the prior-year quarter to $208.1 million, while its non-GAAP EPS increased 13.5% from its year-ago value to $0.42. In addition, its consumer retention remained at more than 95% during the fourth quarter and throughout the fiscal year.

Premium Valuations

In terms of trailing-12-months non-GAAP P/E, the stock is currently trading at 78.97x, which is 301.5% higher than the 19.67x industry average. Also, its 22.38x forward EV/Sales multiple is 529.2% higher than the 3.56x industry average. Furthermore, TTD’s 22.6x forward Price/Sales  is 580.2% higher than the 3.32x industry average.

POWR Ratings Reflect Uncertainty

TTD has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. TTD has an F grade for Value and a D for Stability. The company’s higher-than-industry valuation is consistent with its Value grade. In addition, the stock 2.36 beta, which is in sync with its Stability grade.

Among the 164 stocks in the F-rated Software – Application industry TTD is ranked #64.

Beyond what I’ve stated above, you can view TTD ratings for Quality, Momentum, Growth, and Sentiment here.

Click here to check out our Software Industry Report for 2022

Bottom Line

While the company is a market leader in the digital advertising space, looming interest rate hikes and other macroeconomic headwinds could exacerbate the near-term pressure on tech stocks. In addition, its premium valuation may restrict its upside potential in this challenging environment for growth stocks. Therefore, we believe investors should wait before scooping up its shares.

How Does the Trade Desk Inc. (TTD) Stack Up Against its Peers?

While TTD has an overall C rating, one might want to consider its industry peers, Rimini Street Inc. (RMNI - Get Rating), Commvault Systems Inc. (CVLT - Get Rating), and SS&C Technologies Holdings Inc. (SSNC - Get Rating), which have an overall A (Strong Buy) rating.

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TTD shares fell $0.42 (-0.51%) in premarket trading Friday. Year-to-date, TTD has declined -9.62%, versus a -9.82% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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