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Why Trade Desk Inc (NASDAQ:TTD) Isn’t Overvalued

Trade Desk Inc (NASDAQ:TTD) shares have been in one of the most dramatic boom phases of any mid-cap technology stock around. There was very little action in the stock for at least a year until Q1 2018 results hit the tape and the world took notice of the stock (that was May 10). It has been off to the races ever since, powered by, a steady stream of new brands and agencies joining the company’s platform. Looking ahead, the company has expressed interest in Connected TV.

Yesterday, TTD saw a big target raise to $150 from $135 at Jefferies following its Programmatic I/O presentation. Q3 results are slated for sometime in the beginning of November, but the exact date has yet to be confirmed.

Trade Desk Inc (NASDAQ:TTD) is a cloud-based advertising-buying platform. The model is simple: Ad buyers can value each impression like traders value stocks, using first and third party data to decide which impression to buy and how much to pay. Its platform enables advertising clients to purchase and manage digital advertising campaigns across various formats, including connected TV (CTV), mobile, video, audio, display, social and native, on a multitude of devices, including smart TVs, computers, and mobile devices.

Growth has been enormous and the stock has leapt higher on a series of big beats.


“It’s So Expensive!”

For stocks like this, the extended forecasts for actual performance are underrepresenting actual growth potential because they are ultimately rooted in guidance and the management of expectations by company management. Companies like TTD work hard to manage the height of the bar so they will easily be able to leap over it.

In other words, the highest quality software plays are generally much cheaper than they look so long as the music is playing – so long as they can keep the primary growth boom going aren’t as expensive as they look if they can continue to outpace forecasts and beat and raise estimates every quarter, which usually drives the stock higher.

Sometimes, it is almost easier to hold a stock with such an aggressive valuation provided you have good reason to believe that the estimates and buyside expectations are being managed well under the actual growth trend and curve.

It’s a game that everyone is playing to some extent, and most on the Street know this full well. The stock is frothy in appearance, but not in fact, because you always want to keep a low bar in place as long as you can. It’s easier to leap over.

The valuations most people look at are about comparing the stock’s price per share to the artificially low bar of expectations.

Trade Desk Inc (NASDAQ:TTD) pulled in sales of $112.3M in its last reported quarterly financials, representing top line growth of 54.3%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($141.7M against $531.6M, respectively), but that doesn’t matter a whole lot here because of the growth rate. As long as they can show that growth rate, money won’t be hard to find.

Savings are important for the low ROI. TTD is better off investing and growing and expecting funds to show up when needed to keep the train steaming down the tracks.

As long as the basic model keeps working, then the market should continue to value it with the “low bar” premium on shares.

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