Snagging stocks while they are on sale is key for investment performance. Though you can still make money with the right stock even as it's hitting all-time highs, buying fantastic companies on the dip is even better. One of those stocks off its all-time high is The Trade Desk (TTD 1.67%).
With the stock down over 7% from its July highs, is it time to buy the dip on The Trade Desk stock? Let's take a look.
The Trade Desk's product is more efficient for advertisers
The Trade Desk is one of the top ways to invest in the advertising industry. Its adtech platform gives ad buyers (the companies wanting to advertise to consumers) the tools they need to place their ads in front of an ideal audience. Gone are the days of plastering the newspaper or TV commercial breaks with generic ads; instead, each consumer is given a tailored ad experience on their device.
Because The Trade Desk only works with the buy side, customers aren't worried about biasing results for high-profit areas. Its focus on providing advertisers with the best possible outcomes for their ad campaigns has allowed it to rise to the top of its industry. It also has a widespread service offering, as it can place ads on connected TV, online video, podcasts, and mobile devices.
Using proprietary data, customer data, and data purchased from other agencies, The Trade Desk ensures it's in tune with the consumer, allowing its clients to see the greatest return on ad spending.
The Trade Desk developed Unified ID 2.0 (UID2), an alternative to tracking cookies, to improve its product further. This is an open-source technology, so anyone can see what data it's collecting, although they don't have access to actual user data. UID2 ties data to an anonymous ID that stems from a user email address, allowing The Trade Desk to pinpoint the consumer's preferences regardless of their device.
With The Trade Desk's best-in-class technology and extreme dedication to its clients, it's no surprise it has grown rapidly.
The Trade Desk's stock isn't cheap
In Q2, The Trade Desk's revenue rose 23% to $464 million, impressive considering the general weakness in the advertising market. Furthermore, The Trade Desk posted a net income of $33 million, showcasing its ability to turn a consistent profit.
This growth is expected to continue well into 2024, as Wall Street analysts project 23% growth next year. But to own The Trade Desk stock, you'll have to pay a large premium.
TTD Price to Free Cash Flow data by YCharts. PS Ratio = price-to-sales ratio.
At 23 times sales and 76 times free cash flow, The Trade Desk is one of the most expensive software stocks available despite growing slower than many of them.
The stock's high starting point makes it difficult to produce a great return, which is my only hesitancy in buying it. Still, The Trade Desk is in a key position to monetize the digital marketplace, as linear TV ads have a long way to go before they are fully digital. It's a massive opportunity, with the TV ad market estimated at $165 billion in 2023. The digital media market is around $135 billion, so it's clear The Trade Desk has a massive runway.
As a result, I think investors are OK to purchase the stock in small pieces. It would be a wise move here to gain some exposure to monitor The Trade Desk so investors can establish a larger position when the time is right.
The Trade Desk is a fantastic company, but with the stock trading at such a high level, investors must display patience before making this a sizable position in their portfolio.
