The Trade Desk (TTD -2.58%) has taken a big beating on the stock market so far this year, losing 41% of its value as of this writing, due to concerns about a slowdown in the company's growth. Investors pressed the panic button in February when the company reported lower-than-expected revenue for Q4 2024, along with a guidance miss for Q1 2025.
However, shares of the advertising technology company have climbed 63% since hitting a 52-week low on April 7. The Trade Desk's sell-off earlier this year caught my attention, and I considered it an attractive bet at the time.
But now that shares have begun to recover, is it still a good idea to buy? Let's find out.
Image source: Getty Images.
The Trade Desk's valuation is climbing once again
The Trade Desk was trading at an extremely rich valuation at the beginning of the year, but it became relatively affordable by April.
Data by YCharts. PE Ratio = price-to-earnings ratio.
Now trading at 84 times trailing earnings, The Trade Desk boasts a valuation that's nearly triple the earnings multiple of the Nasdaq-100 index, a common proxy for tech stocks. But the good part is the company's forward earnings multiple is significantly lower at 38.
That implies a big jump in earnings for 2025. A look at analysts' estimates tells us The Trade Desk is expected to accelerate its earnings growth above 20% in both 2026 and 2027, following this year's more modest jump of 7%.
Data by YCharts. EPS = earnings per share.
However, the possibility of The Trade Desk outperforming those estimates cannot be ruled out. After all, the company's adjusted earnings increased 27% year over year in the first quarter. Looking ahead, solid gains from the company's artificial intelligence-powered programmatic ad platform could allow it to win more business and sustain its healthy growth rate.
On the latest earnings call, CEO Jeff Green outlined the benefits of its AI-enabled platform:
For example, on average, clients that have shifted over have seen a 42% reduction in cost per unique reach. We're also working with clients beyond typical brand and reach metrics. Kokai is delivering on lower funnel KPIs [key performance indicators], including 24% lower cost per conversion and 20% lower cost per acquisition. These improvements are helping unlock performance budgets from new and existing clients.
The company believes the higher efficiency of its AI platform will encourage customers to spend more money on its programmatic ad offerings. As a result, the company could see higher margins and deliver even better earnings growth than what analysts are expecting.
Investors would do well to look past the valuation
The Trade Desk has been reorganizing its sales force to capitalize on the massive programmatic ad market more efficiently. Those moves seem to be bearing fruit as the number of active contract negotiations is at an all-time high, according to management. This suggests its future revenue pipeline may be improving as well.
Another thing worth noting here is the tailwind from broad growth of programmatic advertising. One estimate sees this market expanding tenfold by 2033 with over $235 billion in annual revenue.
The Trade Desk stock doesn't look all that expensive when taking into account its long-term growth potential, and investors should still consider picking up shares.
