Despite landing a solid beat on analyst expectations for their Q2 earnings last week, shares of Trade Desk Inc (NASDAQ: TTD) have been on the defensive in the trading sessions since then. Having actually climbed to 52-week highs in the days before the report was released, the subsequent drop will have left investors disappointed for a number of reasons.
For starters, it was the Trade Desk’s second-highest quarterly revenue print ever, coming off the back of 23% year-on-year growth. In addition, its EPS print was the highest in two years and very much in the black after flirting with the red last quarter. The company’s forward guidance was also ahead of the consensus, further compounding investors.
It appears that with shares having already rallied more than 100% year to date, Wall Street was looking for an even better report, and the subsequent disappointment is behind the selling pressure. Still, the long-term potential remains very much intact. Here are three ways to play the Trade Desk over the coming weeks.
Long-Term Growth Buy
The first is for those of us who are most bullish about the ad-tech space and The Trade’s Desk market position in it. The company competes against both Meta Platforms Inc (NASDAQ: META) and Alphabet Inc (NASDAQ: GOOGL), and their earnings have already shined a light on the strong bounce underway in advertising revenues. Having come through what appears to be the worst of the tech downturn, there’s a strong argument to be made that the good times are coming once again to the industry.
And if they are, then the Trade Desk is an attractive buy right now despite the recent bout of selling.
Its stock saw rallies of 600% in 2020 and 150% in 2021, and investors know when things are good, they’re very good. With revenue back towards all-time highs and EPS firmly trending up, it’s obvious that the Trade Desk’s fundamentals are as strong as they’ve been in years.
It was on a fundamental basis that the team at BTIG upgraded them two weeks ago, noting at the time their expectations for accelerated growth and improving margins into 2024 and beyond. In that regard, the post-earnings slide could have just opened up a great entry opportunity for the investor who wants to get in now for the long haul.
Technical Buy
Leaving aside fundamental performance, accessing a stock’s technical strength, or indeed weakness, is another great way for investors to size up an opportunity, and it’s no different with the Trade Desk. Even before the good-but-not-great earnings report started the current slide, the stock had turned back from $90 after testing it twice.
This will be of no surprise to the technical readers as $90-95 is a strong zone of resistance that has stopped buying momentum numerous times in the past.
\Looking at this from a potential long perspective, though, the recent selling has strengthened the case for a technical buy. The stock’s relative strength index (RSI), a measure of how overbought or oversold a stock is, is fast approaching 30, an indication that shares are close to being extremely oversold.
One way to use this to your advantage would be to start scaling into a position around here and waiting for other technical indicators like a bullish MACD crossover to happen before fully committing. That way, you’re getting some skin in the game now but have enough leftovers to lower your average price if the slide continues.
Cautious Wait and See
Even though the Trade Desk’s fundamentals and technicals support the bull’s position, there are still reasons to be cautious. Chief among these is the stock’s valuation, measured by its price-to-earnings (PE) ratio. After last week’s report, this stands at 300, a figure more in line with what investors were used to back in 2020 and 2021 when money was cheap.
With interest rates continuing to rise, it’s becoming more and more expensive for growth stocks like the Trade Desk to scale and meet expectations. It may be a lot lower than the 1,700 PE ratio it commanded in 2020, but when compared to Meta’s 35 or Alphabet’s 28, it makes the Trade Desk feel very expensive.
The risk-averse investor would be well entitled to use this as a reason to hold off on buying for now, especially as the current slide seems motivated by a sense of overall disappointment in their most recent earnings. Shares have already dropped 20% from July’s high; waiting to see where they bottom out and then getting involved is a prudent way to avoid catching a falling knife.
