1 Incredible Growth Stock Down 64% to Buy Hand Over Fist

Editor’s Update: This article focused on the future value of The Trade Desk. We are writing to share that The Trade Desk price popped on Wednesday, almost reaching $55 per share. This is likely related to the recent earnings beat discussed below.

The bear market that began earlier this year has been particularly hard on technology stocks. The Nasdaq Composite is down 35% from its high, compared to a 22% decline for the S&P 500. The downturn has been spurred on by near-40-year-high inflation, rising interest rates, and the resulting economic uncertainty.

It's important to remember -- particularly in the midst of the worst economic downturn since 2008 -- that a bear market mauls good and bad stocks alike. This creates incredible bargains in the process, particularly for investors who can tell when a falling stock price has nothing to do with the strength of the underlying business.

One company that has consistently operated from a position of strength is The Trade Desk (TTD 4.15%), which has gained an incredible 2,100% since its initial public offering (IPO) in 2016. While many investors have never heard of the programmatic advertising pioneer, you'd be hard-pressed to find an ad executive who isn't intimately familiar with The Trade Desk and its cutting-edge adtech platform.

Image source: Getty Images.

An adtech primer

Programmatic advertising is the process that uses sophisticated algorithms and high-speed computers to put the right ads in front of the right customer at the right time. The Trade Desk's platform handles the grunt work, facilitating real-time bidding, which helps its customers get the best return on their investment.

Furthermore, the company has strong relationships with the world's largest ad agencies and a broad coalition of industry heavyweights that have adopted Unified ID (UID) 2.0, its privacy-compliant identifier that is the heir apparent to ad-tracking cookies, which are paving the way to oblivion. 

Finally, The Trade Desk recently launched OpenPath. This gives advertisers direct access to premium digital advertising inventory, eliminating the need for a go-between and helping publishers maximize the revenue from their ad impressions. 

Three factors driving strong and ongoing growth

On the conference call to discuss the results, founder and CEO Jeff Green said the company gained more market share "than at any point in our history," citing three factors driving this impressive land grab.

First, Green noted that in view of the macroeconomic difficulties, programmatic advertising gives marketers the most bang for their buck, providing "one of the most effective ways to drive relevance and differentiation." Additionally, they see increasing value across the open internet, as opposed to "walled gardens" including Alphabet's Google and Meta Platforms' Facebook.

Second, Green cites the "transformational role" of connected TV (CTV) in showcasing its value. He said CTV is The Trade Desk's "fastest-growing channel, and it has rapidly become our largest." Ad spending on CTV grew in the majority of the company's international markets faster than it did in the U.S. Green noted the "pace is picking up in all corners of the world," fueled by "working partnerships with pretty much every premium CTV provider worldwide." It doesn't hurt that Netflix and Disney+ will soon offer ad-supported tiers of their popular streaming services, further expanding the CTV advertising market.

Finally, UID is reaching "critical mass," according to Green. The ability to precisely target advertising, without the resulting invasion of privacy, is driving a secular shift in the space, and The Trade Desk is the principal beneficiary. In fact, Green predicts that by early next year, "more than half the data inventory flowing through our platform" will be a direct result of UID 2.0.

The proof is in the pudding

Even in the midst of the downturn, The Trade Desk has continued to rack up impressive results. For the third quarter, revenue of $395 million climbed 31% year over year, while adjusted earnings per share (EPS) of $0.26 climbed 44%. This was in stark contrast to results by Alphabet, which grew revenue by just 6% during the same period, and Meta, whose revenue declined 4%, marking the second consecutive quarter of year-over-year declines.

The Trade Desk's results also outpaced Wall Street expectations, as analysts' consensus estimates were calling for revenue of $386.2 million and EPS of $0.23. The company is clearing both bars with ease.

It also kept its customer retention at 95%, a streak it has maintained going back more than eight years.

A word on valuation

The Trade Desk has all the makings of an ad-industry powerhouse -- but the stock isn't for everyone. It currently trades at 14 times sales, when a reasonable price-to-sales ratio is between 1 and 2. Still, given this unique combination of strong growth drivers, accelerating secular tailwinds, and consistent performance, The Trade Desk has shown it's worthy of a premium valuation. These factors also make it one stock investors should be buying hand over fist.

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