Trade Desk Inc (NASDAQ: TTD), an information technology firm with a market capitalization of $2.2 billion, saw its share price increase by 24.6% over the prior three months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. Is there still an opportunity here to buy? Let’s examine Trade Desk’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Is Trade Desk Still Cheap?
According to my valuation models, the stock is currently overvalued by approximately -21.0%, trading at $71.25 compared to its intrinsic value of $56.29. Not the best news for investors looking to buy!
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$63.10||-11.4%|
|5-yr DCF Revenue Exit||$52.72||-26.0%|
|Peer Revenue Multiples||$49.79||-30.1%|
|Peer EBITDA Multiples||$43.22||-39.3%|
|10-yr DCF Growth Exit||$69.27||-2.8%|
|5-yr DCF Growth Exit||$59.56||-16.4%|
|Peer P/E Multiples||$56.33||-20.9%|
Click on any of the analyses above to view the latest model with real-time data.
However, will there be another opportunity to buy low in the future? Given that Trade Desk’s stock is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) could mean the price can sink lower, giving investors another chance to buy in the future. This is based on its high beta, which is a good indicator of share price volatility.
What Does The Future Of Trade Desk Look Like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations.
source: finbox.io data explorer
With EBITDA expected to grow on average of 29.7% over the next couple years, the future certainly appears bright for Trade Desk. It looks like higher cash flows are in the cards for shareholders, which should feed into a higher share valuation.
How This Impacts You
Many investors separate stocks into value and growth categories based on quantitative metrics. However, one of the most famous investors in the world views this as foolish. In Warren Buffett’s 1992 letter to Berkshire Hathaway shareholders, Buffett touches upon a subject at odds with much of the investment industry:
“Most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking… In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value.”
While investors tend to categorize stocks into value and growth, some of the most successful investors view growth as simply one component of a company’s value.
Trade Desk has positioned itself so that double-digit growth appears to be a reasonable assumption for the foreseeable future. However, this growth does not look highly attractive at current trading levels. As such, investors may want to hold off on buying or adding to their TTD position for the time being.
But before making an investment decision, I recommend you continue to research Trade Desk to get a more comprehensive view of the company by looking at:
Risk Metrics: what is Trade Desk’s cash ratio which is used to assess a company’s short-term liquidity. View the company’s cash ratio here.
Valuation Metrics: what is Trade Desk’s free cash flow yield and how does it compare to its publicly traded peers? This metric measures the amount of free cash flow for each dollar of equity (market capitalization). Analyze the free cash flow yield here.
Efficiency Metrics: return on equity is used to measure the return that a firm generates on the book value of common equity. View Trade Desk’s return on equity here.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.