Although fractional shares make it easier for investors to purchase high-priced stocks, some brokerages still don't have that feature. As a result, you might be attracted to lower-priced stocks so they don't overweight your portfolio if you're just getting started.
Among stocks priced under $100 per share currently, few are better buys than The Trade Desk (TTD -3.56%) and Datadog (DDOG -3.23%). These tech stocks had a rough 2022 (during which they fell below $100 per share) but still have strong futures ahead of them. Keep reading to discover why these two are excellent buys in today's market.
The Trade Desk
As the advertising industry moves toward a more consumer-targeted model, The Trade Desk's software becomes essential to any advertiser's strategy. Its buy-side platform helps advertisers identify and place their ads in front of the most likely audience to engage with it.
It's also developing a better solution for tracking audiences with its Unified ID 2.0 (UID2) technology. Instead of tracking cookies (which are being phased out), the open-source code associates an email address with an anonymous ID, allowing The Trade Desk to track the consumer from platform to platform more accurately and securely.
With game-changing technology and a proven platform, The Trade Desk has become the go-to solution for advertisers.
It also has pretty solid financials. In Q3, it grew revenue by 31% and delivered $111 million in free cash flow -- a 28% margin. Although barely profitable in the third quarter (it posted earnings per share of $0.03), this number should rapidly expand throughout 2023 thanks to the effect of a one-time CEO performance bonus disappearing.
The stock trades at a pricey 48 times free cash flow, but with the growth opportunity The Trade Desk possesses, it's not terribly expensive. Digital advertising is in the early innings as an industry, and The Trade Desk is far from done growing. This stock is an excellent long-term investment and now looks like a great time to get in.
Datadog
As companies employ more software and harness data flows from various sources, monitoring how everything interacts becomes nearly impossible. That's where Datadog's software can help. With its industry-leading application performance monitoring and observability software, IT teams have the tools to see how information flows across an enterprise.
In addition to its core offering, Datadog has recently expanded into cloud security to help protect data flows from outside sources. With over 30 products in its arsenal, which span from security to monitoring, Datadog allows IT teams to expand their capabilities significantly without having to work with a different company.
This is a critical part of its business strategy, as customer adoption of more offerings creates a significant amount of revenue. It's doing a great job at this, as the average customer spent at least $130 this quarter for every $100 it spent last year. This increase in spending likely came from customers utilizing multiple products from Datadog.
| Quarter | Percent of Customers Using 2 or More Products | Percent of Customers Using 4 or More Products | Percent of Customers Using 6 or More Products |
|---|---|---|---|
| Q3 2020 | 71% | 20% | 0% |
| Q3 2021 | 77% | 31% | 8% |
| Q3 2022 | 80% | 40% | 16% |
Data source: Datadog.
As long as customers sign up for more offerings, Datadog should continue to be a successful investment.
Datadog also produces solid free cash flow, generating a 15% margin in Q3. However, Datadog is far from done growing, as its revenue rose 61% in the third quarter.
Because of Datadog's focus on growth instead of profitability, it's better to value it from a price-to-sales standpoint. At 16.2 times sales, it's valued practically the same as The Trade Desk, despite its faster growth.
With Datadog's software becoming increasingly important, it will likely continue to see strong customer growth and product usage expansion. This could make Datadog a lucrative investment over the coming years, and investors should take this opportunity to get into the stock.
