With the deluge of daily headlines, it can be tough to keep our long-term investment objectives in the proper context -- particularly after rough years like 2022. But we don't invest for one-year returns; we invest over time to meet our financial goals. It's vital to continue disciplined investing, like dollar-cost averaging, even during market volatility. As famous investor Warren Buffett says, "the most important quality for an investor is temperament, not intellect."
The Trade Desk's (TTD 2.53%) stock fell 50% in 2022, but is up 65% over three years and 826% over the last five.
This perfectly illustrates the adage that "time in the market" is better than "timing the market." In other words, the best way to accumulate wealth in stocks is to buy and hold terrific companies -- not try to time short-term price movements. Let's take a closer look at whether The Trade Desk's stock is worth investing in for the new year.
What is The Trade Desk anyway?
The advertising business is competitive and dynamic. The last decade has seen massive change as mediums like online video, connected television (CTV), display, and retail have exploded. The big question companies are asking is, "how do we reach our target audience efficiently and effectively?" The Trade Desk's platform provides the solution.
The cloud-based platform offers ad agencies and companies billions of omnichannel ad opportunities, data used to reach target audiences (e.g., if a company is selling pet insurance, it must target pet owners to be effective), and visibility to track the effectiveness of campaigns through a user-friendly interface.
Connected television (CTV) -- any TV watched via an internet connection -- is one major target area for The Trade Desk. Nielsen reports that streaming television viewership surpassed cable for the first time in 2022, and this trend is likely to continue.
Companies like Netflix, which was previously ad-free, are moving to tiered subscriptions, with lower-cost tiers having advertisements. Companies that partner with The Trade Desk currently have access to 90 million households and 120 million CTV devices.
Another growth objective is in retail marketing, where stores sell ad space on their websites, apps, or in-store displays. According to Statista, digital-retail advertising spending was $77 billion in 2021 and is expected to double by 2024. The Trade Desk partnered with Walmart to create its Walmart Connect platform, as well as with Albertsons, Walgreens, and others. This is fertile ground for revenue for The Trade Desk as retailers look to its expertise to maximize their profits.
Terrific results, but is the price too high?
The Trade Desk's revenue has exploded, as we would expect. Based on the company's fourth-quarter guidance (shown below), when 2022's results are in, it will have more than tripled since 2018.
Data source: The Trade Desk. Chart by author.
Many predict advertisers will spend less in 2023 because of a potential recession, hurting The Trade Desk's growth. However, advertisers looking for more bang for their buck could see The Trade Desk's value-added targetted approach as a terrific option. Whatever happens in 2023, the secular trends in CTV and omnichannel advertising favor The Trade Desk.
The Trade Desk currently has a market cap of $22 billion, or about 15 times sales. This price-to-sales (P/S) ratio is the lowest since the pandemic crash and early 2019 before that, as shown below.
TTD PS Ratio data by YCharts. PS ratio = price-to-sales ratio.
Looking ahead, if the company grows sales just 25% annually (slower than in any previous year) for the next two years, it will have annual sales approaching $2.5 billion, and the P/S ratio will be lower than even its March 2020 crash. The Trade Desk also has more than $1.3 billion in cash and investments and no long-term debt. These metrics suggest far more long-term upside potential than downside risk at the current valuation.
It is still vital for investors to understand that the stock may fall further in the short term. After all, it's not practical to predict the absolute bottom. So it's best to accumulate a position slowly over time and diversify.
The Trade Desk has many characteristics of a long-term winner with a terrific market opportunity, tremendous revenue growth, and a strong balance sheet. The stock trades at its most attractive valuation in years and warrants strong consideration from growth-oriented investors.
