The S&P 500 (^GSPC 0.26%) returned more than 25% during the three-month period ending on July 9, marking the sixth time in history the index has accomplished that. Interestingly, not only has the S&P 500 always been higher one year later, but also it has returned an average of 21% during the subsequent year.
In short, history says the stock market is about to soar, and most Wall Street analysts who follow The Trade Desk (TTD -0.18%) and Pure Storage (PSTG 0.97%) have buy ratings on the stocks.
- Among 42 analysts, The Trade Desk has a median target price of $90 per share. That implies 10% upside from its current share price of $82.
- Among 20 analysts, Pure Storage has a median target price of $70 per share. That implies 25% upside from its current share price of $55.
Here's what investors should know about these magnificent stocks.
Image source: Getty Images.
1. The Trade Desk
The Trade Desk runs the largest independent demand-side platform (DSP), a type of ad tech software that helps brands and advertising agencies plan, measure, and optimize digital campaigns. Analysts at Frost & Sullivan recently ranked it as the leading DSP based on growth and innovation. The company has an especially strong position in connected TV and retail advertising due to its independent business model.
To elaborate, The Trade Desk does not own media content. That eliminates that conflict of interest inherent to Alphabet and Meta Platforms, which have a clear incentive to steer ad buyers toward their own inventory on sites like Google Search and Facebook. The Trade Desk's independence has helped it forge partnerships with CTV publishers like Netflix and Walt Disney, and many large retailers, including Target and Walmart.
The Trade Desk reported encouraging financial results in the first quarter. Its customer retention rate remained above 95%, as it has for the past eleven years. Revenue increased 25% to $616 million and non-GAAP earnings increased 27% to $0.33 per diluted share. "We continue to grow at a rate significantly higher than the broader digital marketing industry and gain market share," CEO Jeff Green said in prepared remarks.
Wall Street estimates The Trade Desk's adjusted earnings will grow at 12% annually through 2026. That makes the current valuation of 48 times adjusted earnings look expensive. But I think analysts are underestimating.
Grand View Research expects ad tech spending to grow at 14% annually through 2030, and The Trade Desk has consistently gained market share in the past, suggesting earnings could grow faster than anticipated. Indeed, the company beat the consensus earnings estimate by an average of 12% during the past six quarters.
2. Pure Storage
Pure Storage develops enterprise data storage products. The company is particularly well known for all-flash arrays, systems that exclusively use flash memory, which is faster and more reliable than hard disk drives. In addition, Pure Storage says its DirectFlash software and hardware technology eliminates many bottlenecks and redundancies associated with traditional solid-state drives (which also use flash memory).
Consultancy Gartner recently ranked Pure Storage as a leader in primary storage platforms for the 11th year in a row. The company also boasts an industry-leading net promoter score of 82, which points to high customer satisfaction. Cognitive Market Research says the all-flash array market will increase at 24% annually through 2031.
Pure Storage beat estimates in the first quarter, but the results themselves where mixed. Revenue increased 12% to $778 million, but non-GAAP operating margin fell four percentage points and non-GAAP earnings dropped 9% to $0.29 per diluted share. On the bright side, management expects its operating margin to rebound in the second quarter.
Pure Storage recently introduced FlashBlade XL. It will be the highest performing storage platform for artificial intelligence and high-performance computing workloads, according to the company. "We are confident in our continued momentum to grow market share and strengthen our leadership position in data storage and management," said CEO Charles Giancarlo.
Wall Street expects Pure Storage's adjusted earnings to grow at 19% annually through the fiscal year ending in January 2027. That makes the current valuation of 33 times adjusted look reasonable, especially when the company beat the consensus by an average of 21% in the last six quarters. Patient investors should feel comfortable buying a small position now.
