Many investors faced unprecedented headwinds last year. Inflation hit its highest mark in 40 years, prompting the Federal Reserve to raise interest rates at their fastest pace since the early 1980s, and the economic uncertainty created by those events dragged the S&P 500 and the Nasdaq Composite into a bear market. The broad-based S&P 500 is still down 16%, and the tech-heavy Nasdaq Composite is still down 28%.
Fortunately, every past bear market has ended in a new bull market, and there is no reason to believe this one will be different. That means the next bull market is coming. In the meantime, shares of The Trade Desk (TTD 0.85%) and Shopify (SHOP 0.14%) are down 49% and 75%, respectively, from their highs and both stocks trade at reasonable valuations right now.
Investors shouldn't let that buying opportunity slip away.
1. The Trade Desk
The Trade Desk delivered a solid financial performance in the fourth quarter. Revenue climbed 24% to $491 million, and the ad tech company reported GAAP earnings of $0.14 per diluted share, up sevenfold from the prior year. Those results are particularly impressive when benchmarked against the industry leaders, Alphabet and Meta Platforms, both of which reported a 4% decline in fourth quarter ad revenue.
In other words, the Trade Desk is taking market share quickly, and investors have two good reasons to believe that momentum will continue. First, The Trade Desk benefits from its independent business model. The company does not own any content and, therefore, has no incentive to coerce advertisers toward specific inventory. That means its values are aligned with its customers. By comparison, Alphabet and Meta have a clear incentive to drive spend on their own platforms, meaning Google Search, YouTube, Facebook, and Instagram. That creates a conflict of interest.
Second, The Trade Desk has infused its platform with an unmatched artificial intelligence engine and the most advanced data marketplace in the industry, according to management. Those tools allow advertisers to target ads and optimize campaigns more effectively, and that ultimately leads to better campaign outcomes. To that end, consulting company Quadrant Knowledge Solutions recently recognized The Trade Desk as the leading ad tech platform based on its greater customer impact and superior technology.
Turning to the future, the digital advertising industry is rapidly approaching a $1 trillion addressable market, meaning The Trade Desk has a long runway for growth. Currently, shares trade at 18 times sales, a discount to the three-year average of 30.3 times sales. That's why this growth stock is a screaming buy.
2. Shopify
Shopify delivered an underwhelming financial performance in the fourth quarter. Revenue increased 26% to $1.7 billion -- a material deceleration from 41% growth in the prior year -- and non-GAAP net income dropped 50% to $0.07 per diluted share. But investors can chalk those results up to temporary economic headwinds, not a material problem with the underlying business. Shopify is well positioned to reaccelerate growth in a more favorable economic environment.
Why? Many investors know Amazon is the largest e-commerce company in the U.S.; it accounted for 38% of domestic digital retail sales last year. But investors may not know that Shopify ranks second, with 10% market share. Shopify is also the market leader in e-commerce software, which positions it to be a major winner as online shopping continues to gain steam.
Shopify has achieved that success, in part, because its platform simplifies commerce and empowers merchants in ways that few (if any) peers can match. Its software integrates physical and digital sales channels behind a single dashboard. That means, from a single interface, merchants can manage their businesses across marketplaces like Amazon, social media like TikTok, direct-to-consumer websites, and brick-and-mortar stores.
Shopify is leaning into its ability to empower merchants with the Shopify Fulfillment Network (SFN). The SFN will simplify three phases of the supply chain: inbounding freight, distributing inventory, and fulfilling orders. Shopify is currently ramping logistics services, which will undoubtedly put pressure on margins and profitability in the near term, but the long-term value is clear. At scale, the SFN will support two-day delivery to U.S. buyers across multiple sales channels. That should draw more businesses to Shopify.
On that note, global e-commerce sales are expected to grow at 13.6% annually to reach $15 trillion by 2030, according to Ameco Research. That means Shopify has hardly scratched the surface of its addressable market. And with shares trading at 9.3 times sales, an absolute bargain compared to the three-year average of 34.2 times sales, now is a great time to buy this growth stock.
