"The very best way to make money is in a small growth company that has been profitable for a couple of years and simply goes on growing."
-- Peter Lynch
Everyone is eager to find the next Nvidia. And why wouldn't they be? Its stock is up a staggering 934% since October 2022.
So, where does one go when looking for the next Nvidia? One answer is provided by Peter Lynch, who is one of the greatest investors of all time. As the quote above says, it's best to look for young growth companies that could potentially offer high returns.
One such company is The Trade Desk (TTD +2.96%). Here's why it's a stock worth considering now.
Image source: Getty Images.
What does The Trade Desk do?
Let's cut right to the chase. The Trade Desk isn't a company most people know. That's because the company operates in a little-known but widely used space: the programmatic advertising market.
In short, The Trade Desk acts as an advertising middleman -- connecting advertisers with content publishers who sell ad space. For example, many streamers, like Netflix, Walt Disney, and Paramount, have launched ad-supported subscription tiers. They have ad space to sell and want to collect the most ad revenue possible.
Similarly, marketing agencies want to generate the best return on investment for their clients' ad campaigns. That means targeting ads to the most receptive audience possible.
The Trade Desk helps both sides achieve their aims through its artificial intelligence (AI)-powered platform that enables real-time bidding and optimization, ensuring the best ad placements for advertisers and maximum revenue for publishers.
It's a lucrative business, and one that has helped The Trade Desk grow by leaps and bounds.
NASDAQ: TTD
Key Data Points
The Trade Desk's financials
As of its most recent quarter (ended on March 31), The Trade Desk reported quarterly revenue of $491 million, up 29% from a year ago. Over the last five years, trailing-12-month revenue has grown from $560 million to $2.1 billion -- or roughly a fourfold increase.
Analysts expect the company to grow sales 24% this year and a further 20% in 2025. In addition, the overall digital ad market -- already estimated at nearly $750 billion -- is expected to continue growing well past $1 trillion in the coming years.
Is The Trade Desk a buy now?
Clearly, The Trade Desk is a hot stock in a growing sector. However, there are some concerns. For one thing, the stock is pricey. With a price-to-sales (P/S) ratio of 24, The Trade Desk is far more expensive than most stocks. Even within the tech sector, the company's P/S ratio is about twice the average.
That said, the company has now been profitable for several years, and it has a rock-solid balance sheet with $1.4 billion in cash on hand and only $0.2 billion in debt. So, growth-oriented investors may be willing to pay up for a stock that is poised to cash in on the growth of the digital advertising market.
