Often in investing, finding a company poised to benefit from one big megatrend can be enough to drive strong outperformance versus the market.
However, the two companies we will examine today seem to have multiple tailwinds supporting their operations -- and this allows their shares to command premium valuations. Yet, investors could still find it a market-beating proposition to consider these two sub-$100 stocks and their quickly growing businesses.
Without further ado, let's explore The Trade Desk (TTD 0.85%) and Celsius (CELH -1.41%), and see why their unique operations look set to thrive far into the future, sitting at the confluence of multiple industry shifts.
1. The Trade Desk
At the intersection of advertising's shift to digital markets, the rise of connected television (CTV), and the downfall of third-party cookies sits The Trade Desk and its buy-side technology platform. Allowing ad agencies, brands, and technology companies to choose from over 500 billion digital ad opportunities daily, Trade Desk has rocketed to a leadership position in the digital advertising industry.
Thanks to its massive platform, its CTV reach to over 90 million homes, and its burgeoning cookie alternative named Unified ID 2.0 (UID2), the company plays a vital role in the digital advertising revolution. Look no further than its incredible sales growth over the last decade to see how rapidly Trade Desk's services have been adopted.
TTD Revenue (Quarterly YoY Growth) data by YCharts.
While growth has decelerated recently, the company's continued success is impressive, especially during the pandemic and a weakened advertising market in 2022. While the global ad market grew by only 8% in 2022, Trade Desk delivered fourth-quarter sales growth of 24%, gaining valuable market share within its industry.
Leading this outsized growth is the company's CTV unit, which was its fastest-growing channel and now accounts for roughly 45% of its total revenue. Speaking about the power of the ongoing transition from linear TV to CTV, Trade Desk CEO Jeffrey Green explained, "It won't be a long gradual shift to CTV. It will be an acceleration and then a full long shift. One of the things I am preparing for as a CEO is making sure that we have the resources and scale in place to help our clients through that shift."
Further highlighting why advertisers are so keen to shift to CTV, Walt Disney reported that once it began using the company's UID2 framework, it saw a 12-fold improvement in effectively reaching its target audience. This could be an early indicator of success for what appears to be a necessary upgrade from privacy-intrusive third-party cookies.
Thanks to the combination of these three trends -- not to mention Trade Desk's global expansion plans or its retail shopping ad ambitions -- the company should see continued growth for decades. However, trading at a price-to-sales (P/S) ratio of 19, Trade Desk's premium valuation may be best to slowly add to over time rather than buy in one purchase.
2. Celsius
Blending the megatrends of steady energy-drink growth with healthier beverage options, Celsius and its proprietary Metaplus blend looks to carve out its niche of better-for-you energy drinks. Backed by multiple clinical studies, the company's reimagination of the energy-drink industry brings a thermogenic offering, helping to boost metabolism and burn fat and calories.
Quickly rocketing up the leaderboard to become the third-biggest U.S. energy drink, Celsius grew its market share from 3.4% to 6.4% in just the last year, as of the end of January 2023. Growing sales by 1,480% in just the last five years, the company has seen its share price rise by a similar amount over the same time.
Despite this incredible run, there is still plenty of room for excitement looking ahead.
First, the company received a $550 million investment from PepsiCo in 2022 in exchange for 8.5% of its business and the right to be its primary distributor. While this new partnership is still young, Celsius has already seen the first four weeks of 2023 grow sales by 136% year over year, highlighting the initial upside of this new agreement.
Second, this new distribution will kick-start Celsius' foray into the food service, hotel, airport, university, and healthcare channels -- areas previously out of reach for the company. Highlighting just how powerful these new areas could be, Pepsi has access to over 60% of the college population, which could be a massive opportunity for Celsius to build relationships with new, younger customers.
Finally, even without this partnership, the company has grown to become the second best-selling energy drink on Amazon, maintaining a 17% market share. This is only behind Monster (one of the single most successful stock picks since 2000) and its 26% share, and ranks ahead of Red Bull's 12% share.
Recording 108% revenue growth in 2023, year over year, Celsius is likely to realize stronger operating leverage over the next few years as its distribution network reaches higher efficiencies. As these efficiencies kick in, investors should be on the watch for consistent profitability as the company moves to the next stages of its maturity as a rapidly expanding growth stock.
Trading at 10 times sales, Celsius also maintains a premium valuation, like Trade Desk. However, its blistering growth rates, new partnership, and potential for incoming profitability could have it poised to quickly outgrow its formidable pricing.
