Have The Wheels Come Off The Trade Desk (NASDAQ: TTD)

For a company that watched its shares rally by more than 600% last year, The Trade Desk (NASDAQ: TTD) has had a rough first five months to 2021. Their stock has been pretty much sliced in half since hitting an all time high in the final week of December and any remaining bulls would be forgiven for wanting to throw in the towel. To be sure, almost all tech names have given investors a lacklustre performance so far in 2021 compared to the razzle and dazzle of last year, but The Trade Desk ranks among those that have imploded most spectacularly.

With a triple-digit price-to-earnings ratio, they were also among the tech stocks most exposed to a rise in interest rates which lowers the value of future earnings while also making it more expensive to borrow money. But with the stock’s RSI below 30 and shares so far trending towards their first consecutive day of gains since last month, maybe it’s time to ask yourself if the selling is starting to look overdone. 

Double-Digit Growth

The company’s Q2 numbers, released on Monday morning, came in well ahead of where analysts were expecting and seem to have attracted a steady flow of bids that have been missing for a while now. GAAP EPS was 66% higher than the consensus while revenue was up more than 36% on the year. Management made the bullish move of raising their forward guidance too which was the cherry on top of what can only be called a solid, and needed earnings report. 

Despite the downtrend in their shares that’s become worryingly steep, management also struck a bullish tone in their comments. “We delivered an outstanding performance in the first quarter, once again surpassing our expectations. Revenue growth acceleration over Q1 a year ago is a testament to the value that marketers are placing on data-driven advertising. Nowhere is this more apparent than CTV, which continues to lead our growth,” said Jeff Green, oo-founder and CEO of The Trade Desk.

They’re not the only ones in the bull camp. On Tuesday of this week, the folks over at Truist upgraded The Trade Desk shares from Hold to a Buy rating, and lobbed a $620 price target on for good measure. From Tuesday’s closing price, that suggests there’s upside of around 20% to be had. They think the recent bout of selling has given The Trade Desk a tasty valuation, and while there’s a lack of visibility beyond Q3 right now, the long-term trend and potential remain intact. 

Their comments mirrored those of Needham who last month made a similar call as they reiterated their Buy rating in the face of a run of ugly down days. Needham believes The Trade Desk’s total addressable market has effectively doubled in light of recent growth and understandably so their price target of $1,000 is considerably more bullish than Truist’s. This four digit print would represent a new all time high if The Trade Desk managed to tag it in the coming months. 

Long Term Potential

Even prior to the pandemic lighting a fire under pretty much any stock even closely resembling a tech name, The Trade Desk had earned a deserving reputation of one of the hottest stocks to have in a portfolio. The good news for those of us still on the sidelines is that they’re still pumping out double-digit revenue growth and are telling us that they think the market has underestimated future earnings. All while their shares have become considerably cheaper in the past few months. We now have a few Wall Street heavyweights starting to row in behind them and technically, there’s a lot to like at these levels. 

No matter how steep a downtrend is, an RSI below 30 is always going to make investors sit up and take notice, especially when it means shares are trading around long-term support. At the moment, they’re just trading around the $500 which is where they consolidated at the end of last summer before taking off on their eye-watering rally into the end of the year. If the bulls refuse to allow shares trade much lower from here and if the tech sector can catch some love in the coming sessions, you’d have to back shares to at the very least start snapping back towards their longer-term averages.