Some investors are fired up because a number of popular companies have stock splits in the works. While splitting a stock has no direct impact on the performance or valuation of a company, it can still lead to price appreciation by making shares more accessible. And with the S&P 500 down about 20% from its high, a positive bounce would be a welcome relief.
However, those gains are often short-lived. For instance, shares popped after Amazon's 20-for-1 split went into effect on June 6, but the stock was actually down 10% over the past week. That doesn't mean Amazon is a bad investment. It just means stock splits are one-off events, and short-term catalysts make for poor investment theses.
With that in mind, here are two companies that have been overlooked recently. Both stocks are worth buying right now.
1. The Trade Desk
High inflation and supply chain challenges have been headwinds for digital ad businesses, but the long-term growth trajectory is unchanged. Ad dollars are shifting to digital media, and more advertisers are adopting programmatic platforms. The Trade Desk (TTD 1.66%) should be a major beneficiary of that trend.
Specifically, The Trade Desk operates the largest independent (i.e. not affiliated with content) ad tech platform for media buyers, and that scale gives the company an edge. Its platform gives clients access to hundreds of billions of ad opportunities each day, and every campaign generates more consumer data, making its artificial intelligence (AI) engine better at driving conversions. That powerful flywheel has fueled strong adoption. The Trade Desk serves tens of thousands of advertisers, and the company has kept its retention rate above 95% for the past eight years.
Not surprisingly, that has translated into strong financial results. Revenue climbed 44% to $1.3 billion in the past year, easily outpacing growth in the broader industry. Put another way, The Trade Desk is taking market share. On the bottom line, free cash flow climbed 12% to $394 million, and investors have good reason to believe the company can maintain or even accelerate its growth in the coming years.
Programmatic digital ad spend will reach $725 billion by 2026, according to Statista, and The Trade Desk is executing on a robust growth strategy. Last year, it upgraded its platform with a better AI engine and "the world's most advanced data marketplace," helping media buyers target ad content and measure campaign results more effectively.
More recently, The Trade Desk introduced OpenPath, a service that makes the ad supply chain more efficient by allowing publishers to integrate directly with its platform. In other words, OpenPath eliminates the need for supply-side tools like Alphabet's Google Ad Manager.
That type of disruptive thinking should keep The Trade Desk at the forefront of the digital ad industry. And with the stock trading at 18 times sales -- far cheaper than its three-year average of 31 times sales -- now looks like a great time to invest.
2. Paycom Software
Paycom (PAYC 1.81%) specializes in human capital management (HCM) solutions. Its suite of cloud software helps businesses manage the entire employee lifecycle, from recruitment through retirement. Specifically, its platform includes tools for hiring, training, scheduling, and payroll, as well as solutions for human resources functions like benefits administration.
What makes Paycom special? Its applications are built on a single system of record, which simplifies HCM for administrators. For context, many businesses currently rely on a complex patchwork of HCM software from multiple vendors, meaning employee data must be entered and maintained in several databases. Paycom further reduces the administrative burden with self-service functionality, allowing employees to handle benefits, scheduling, and other tasks through a mobile app.
Collectively, that value proposition has led to strong demand and solid financial results. Revenue climbed 30% to $1.1 billion in the past year, and free cash flow soared 50% to $212 million. More importantly, investors have reason to believe the company can maintain its growth trajectory for many years to come.
CEO Chad Richison says Paycom has captured just "5% of a very large and growing total addressable market." The company is opening new sales offices and bolstering its product portfolio to capitalize on that opportunity. Last year it launched the industry's first self-service payroll software, and over 10,000 customers have already adopted the product. That's well over one-quarter of Paycom's total clientele.
That type of innovation should keep the company at the forefront of the HCM industry, and with shares trading at 15 times sales, Paycom's valuation is well below its three-year average of 23 times sales. That's why now is a good time to buy this growth stock.
