396 Million Reasons To Watch This Growing Stock

Despite a dip in stock performance over the past year, The Trade Desk (TTD -4.79%) was still quite profitable on the business side. In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on March 2, Fool.com contributors Brian Feroldi and Brian Withers discuss the stock's long-term potential and that it's priced for growth.

Brian Feroldi: The Trade Desk just wrapped up its fourth quarter and the results were quite good. Revenue grew 24% during the quarter to $396 million. That exceeded the high-end of management's expectation, and it's also important to note that 24% growth might not sound all that impressive. The year-ago period featured spending on political ads in the United States. That did not repeat so that year-over-year growth rate is even higher if you normalize for the political spending.

An important thing that I like to see, client retention, that figure remained over 95% for the eighth year in a row. Now, the rest of the income statement, not as pretty at least on a GAAP basis. There was a CEO performance award that was expensed during the quarter and that really made the company's expenses balloon.

As a result, net income, at least on a GAAP basis for this company, dropped 90% to about $8 million dollars. Now, if you back out that stock-based compensation award, adjusted net income grew 13% to $208 million or $0.42 cents per share, so the company remains highly profitable on an adjusted basis and likely to be on a GAAP basis next year.

Now, if you back out for the full year, the full-year numbers were just great. Spending on the platform grew 43% to $6.2 billion, revenue grew a similar amount 42% to $1.2 billion, free cash flow was $320 million. The company noted that the recent rollout of its updated trading platform, which it calls Solimar, is gaining widespread adoption and its users are loving it.

The company also launched a recent partnership with Walmart (WMT 0.17%) that gives their customers access to Walmart data, and they also announced a new partnership with Walgreens [part of Walgreens Boots Alliance (WBA 2.98%)]. That's going to add to the company's capabilities. They also launched a new product that they call OpenPath, which provides their customers with a direct pipeline to publisher inventory.

Well, management didn't say it's going to be a threat to companies like PubMatic (PUBM -0.28%). It's potential that those companies can be able to bypass those businesses in the future. For 2022, management is expecting another year of strong growth. Revenue in the first quarter is expected to grow at least 38%. Management has a history of under-promising and over-delivering. All systems go with The Trade Desk.

Brian Withers: I like that update, Brian. I look at the stock performance over the last 12 months and it's disappointing. It's actually down a single-digit percent over the 12 months. Is this a time to buy as the revenue's grown 24%, or has the market given up on this programmatic advertising specialist?

Feroldi: Yeah, this company has actually held up remarkably well when compared to a lot of other growth stocks that are on the market, I think one reason for that is this company is already crazy profitable so it does have that going forward.

Now, to your point, is it a streaming buy today? Maybe, maybe not. This company is still priced for some extreme growth. Shares are trading at about 35 times sales, 120 times forward earnings and those earnings are real. It's not like they're artificially depressed. Remember, this company is highly profitable, so the market has priced this business for growth.

It wouldn't surprise me if this company languished over the next year or maybe even two years, as the fundamentals caught up with the stock price. But long term it's really hard not to like this company's chances of continued outperformance.