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Nicholas Kitonyi
Nicholas Kitonyi
Articles (409)  | Author's Website |

Should You Bet on Trade Desk's Exciting Growth?

The stock is up more than 6%

February 19, 2021 | About:

Shares of application software company The Trade Desk Inc. (NASDAQ:TTD) gained more than 6% on Friday following the announcement of strong fourth-quarter and full-year 2020 results after the closing bell on Thursday.

Trade Desk has gained more than 525% in market value since March 18 after a sequence of strong earnings results. This has pushed its price-earnings ratio to the highs of 310, which implies a significant overvaluation. However, the current rise in stock price was triggered by a change in advertising trends necessitated by the pandemic.

The company sees this change lasting beyond the pandemic and investors appear to agree. In the company's earnings statement, co-founder and CEO Jeff Green said that 2020 was a significant turning point for the industry and the company despite it being a challenging year.

The company increased market share in its fastest-growing business segments, including CTV and Audio, which helped drive record ad spend of $4.2 billion on its platform in the fiscal year 2020.

"Perhaps just as important, in 2020 we saw several years of advertising disruption and innovation compressed into a few months," Green said. "Marketers are being more deliberate and data-driven in everything they do, and as a result, they are gravitating to the advertising opportunities of the open internet."

Highlights from recent quarterly results

Non-GAAP fiscal fourth-quarter earnings per share grew by 149% to $3.71, which outperformed the consensus Street estimate of $1.88. Revenue for the quarter rose by 48.14% to $319.9 million. This was also better than the average analyst estimate of $292.36 million.

Revenue for the year grew 26% to $836 million, up from $661.1 million posted in 2019. Adjusted diluted earnings per share increased to $6.85 from the previous year's equivalent of $3.89.

The company maintained its strong customer retention of 95% for the quarter. It has remained at these levels for the last six years. This puts Trade Desk in a strong position to create precise revenue projection models.

Valuation

From a valuation perspective, shares of Trade Desk are trading at a forward price-earnings ratio of 137.92. This is a significant improvement from the trailing price-earnings ratio of 310. It suggests the company expects earnings to grow significantly in 2021, which could again boost the stock price.

Comparatively, shares of online advertising company Magnite Inc. (NASDAQ:MGNI) trade at a forward price-earnings ratio of 308.21 while Shopify Inc. (NYSE:SHOP) is valued at an equivalent of 301.47.

In summary, shares of Trade Desk appear to be trading at high valuation multiples. However, when we factor in expected earnings growth in comparison to peers, the stock looks relatively undervalued.

Disclosure: No positions in the stocks mentioned.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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