The S&P 500 is well regarded as the best overall gauge of the U.S. stock market and includes the 500 leading publicly traded companies in the country. Given the breadth of businesses that make up the index, it is widely regarded as the most reliable benchmark of overall stock market performance. To be considered for entrance into the S&P 500, a company must meet the following criteria:
- Must be a U.S.-based company
- Must have a market cap of at least $20.5 billion
- Must be highly liquid
- At least 50% of its outstanding shares must be available for trading
- Must be profitable on a generally accepted accounting principles (GAAP) basis in the most recent quarter
- Must be profitable during the preceding four quarters in aggregate
The Trade Desk (TTD 0.92%) is the latest addition to the S&P 500, scheduled to join the benchmark on July 18. That makes it one of only six companies to make the cut thus far in 2025. Since its IPO in late 2016, The Trade Desk has easily outperformed the broader market, generating gains of 2,410% compared to just 190% for the S&P 500 (as of market close on Monday). The stock price gains have been driven higher by solid fundamentals, as its revenue has soared 1,930% and net income has jumped 567%.
Despite the stock's impressive rise and the programmatic advertiser's strong track record of growth, many believe the best days are still ahead for The Trade Desk. Let's take a look at the opportunity ahead and why Wall Street believes the stock is still a buy, despite sporting something of a premium valuation.
Image source: Getty Images.
A changing landscape
There's a paradigm shift taking place in the world of advertising, and The Trade Desk gets much of the credit. The company has built the world's largest independent platform for ad buyers, thanks to the vision of CEO Jeff Green. In 2003, the chief executive founded the world's first online advertising exchange, AdECN, which was acquired by Microsoft in 2007. Taking what he learned, he set out to revolutionize programmatic advertising, co-founding The Trade Desk in 2009.
The company takes a different approach to digital advertising, partnering with the major ad agencies rather than competing against them. The Trade Desk also has a long track record of innovation. The company's Unified ID (UID) 2.0 is the industry standard and heir apparent to cookies -- those annoying bits of computer code that track users across the internet. UID uses encrypted consumer data to target and measure the success of ad campaigns, ensuring that advertisers succeed without sacrificing the security of user data.
The Trade Desk recently introduced Kokai, its state-of-the-art platform, which "brings the full power of AI to digital marketing," according to the company. Kokai can review 13 million advertising impressions every second, which ensures advertisers reach the right audience with the right ad at the best time.
For full disclosure, The Trade Desk suffered a rare misstep in Q4 of last year, missing its own guidance for the first time in 33 quarters as it worked to transition customers to Kokai. Since then, however, the company has done an amazing about-face, quickly righting the ship and reaccelerating its growth.
The numbers paint a picture
Don't take my word for it. The Trade Desk's recent results are compelling. In the first quarter, revenue of $616 million grew 25% year over year, resulting in adjusted earnings per share of $0.10, rising 27%.
The Trade Desk has been consistently profitable since 2013 and has a rock-solid balance sheet, with more than $1.74 billion in cash and marketable securities -- and no debt.
Providing advertisers with an alternative to walled gardens like Meta Platforms and Alphabet's Google makes The Trade Desk an attractive choice and has helped the company maintain its long track record of growth and helped usher in its admittance to the S&P 500.
Wall Street is bullish
Despite The Trade Desk's rare misstep late last year, Wall Street remains bullish. Of the 40 analysts that offered an opinion so far in July, 27 rate it a buy or strong buy and none recommend selling.
Analysts at Susquehanna are among the most bullish, maintaining a buy rating and $135 price target on the stock, representing potential gains of 79% for investors compared to the stock's closing price on Monday. The analysts point to the company's "spectacular" track record of growth and near "flawless" execution, believing the issues that cropped up late last year have been resolved.
The Trade Desk is currently selling for just 34 times next year's earnings, and 11 times next year's sales. While that's certainly a premium, I'd argue it's a reasonable price to pay given its strong history of growth.
Furthermore, the most commonly used valuation metrics tend to struggle measuring high-growth companies, and The Trade Desk certainly qualifies. When measured using the more appropriate price/earnings to growth (PEG) ratio, the multiple clocks in at 0.87, when any number less than 1 is the standard for an undervalued stock.
Given its long track record of success, technological edge, and the support of Wall Street, I would submit that The Trade Desk is a buy.
