Is The Trade Desk a Good Stock to Buy Despite Its Nosebleed Valuation?

Ad tech stock The Trade Desk (TTD 2.38%) is going from strength to strength. The stock is trading down about 10% from one month ago, but is still up nearly 60% over the trailing six months. Should investors jump on this stock right now? In this segment of Backstage Pass, recorded on Dec. 1, Fool contributors Brian Withers and Rachel Warren discuss.

Brian Withers: Let's jump on to The Trade Desk, ticker symbol T-T-D. Investors absolutely cheered after Trade Desk Q3 earnings: $301 million, 39% year-over-year increase, quieting the doubters who didn't think that The Trade Desk could deal with Apple and Google's privacy changes. Growth was 47% year over year when you take out the political spending that was included in the results last Q3.

CEO Jeff Green, and founder, highlighted five metrics to talk about how well the business is executing when he was on the earnings call. Its video, which includes connected TV, now accounts for nearly 40% of the business, and that's the highest ratio ever. International growth outpaced domestic growth. You always like to see that. Its partnership with Walmart was launched. If you don't know what that is, it's providing advertisers with access to unique Walmart shopper data and sales measurement data in a self-service platform.

I really like this move. It partners one of the top programmatic advertisers with one of the top retailers. Unified ID, which is a replacement for cookies and legacy privacy solutions, continued strong industrywide momentum and is reaching critical scale in the market.

Lastly, he [Green] says, "Our mobile business continues to be resilient." And I love this quote from the call: "As we predicted, the most recent iOS changes from Apple have had no material impact on our business, and we expect that to remain the case." The business continues to execute and stands to continue to grow, and with the tailwinds of programmatic advertising.

Rachel Warren: Very cool. That sounds like a really great company with a lot of really strong catalysts for growth ahead, and I think it's interesting considering it qualifies as a growth stock. Many of these companies, like Brian was saying, have been beaten down pretty bad, and this stock has performed really quite well.

Even so, does this high valuation -- which last I checked was about 184 times trailing earnings -- does that valuation concern you at all for this company? What would you maybe say perhaps to potential investors, who are thinking about this stock, but they might be a little bit put off by the valuation?

Brian Withers: 184 times earnings is a pretty lofty P/E ratio. But for growth companies -- and I put The Trade Desk in that category -- considering it was $308 million in revenue in 2017, and just this quarter, it cleared $300 million, and its trailing-12-month revenue is more than $1.1 billion, so it's almost quadrupled its trailing-12-month revenue since 2017. As a growth company, and it has a potential of a huge addressable market, I continue to want management and this company to spend their earnings rather than let them drop to the bottom line.

I want them to increase features, update their infrastructure, find new ways to delight customers. Think of all the money that Amazon is spending to upgrade its infrastructures and deliver for customers faster and have a better interface for them to buy.

This is the same exact thing for Trade Desk, except it's digital in the cloud. I want The Trade Desk to continue to focus on upgrading and spending money for growth for the foreseeable future, as I think this has got a tremendous runway still ahead.

Rachel Warren: Yeah, great insights there for sure.