The Trade Desk Inc (TTD, Financial) recently reported a daily gain of 2.92%, and a 3-month gain of 1.16%. The company's Earnings Per Share (EPS) stands at 0.26. These figures raise a crucial question for investors: Is the stock modestly undervalued? This article aims to provide an in-depth valuation analysis of The Trade Desk, shedding light on its intrinsic value and future prospects.
Company Introduction
The Trade Desk provides a self-service platform that enables advertisers and ad agencies to find and purchase digital ad inventory programmatically. Its platform is referred to as a demand-side platform in the digital ad industry. The company generates its revenue from fees based on a percentage of what its clients spend on advertising. Since going public in 2016, The Trade Desk has seen a 43% average annual rate increase in revenue. The company is profitable, with operating margins ranging from 10%-28%.
Understanding The Trade Desk's GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is calculated based on historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
According to GuruFocus Value calculation, The Trade Desk (TTD, Financial) appears to be modestly undervalued. At its current price of $78.63 per share and the market cap of $38.50 billion, The Trade Desk stock appears to be modestly undervalued. As a result, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength of The Trade Desk
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. The Trade Desk has a cash-to-debt ratio of 5.66, which ranks better than 59.76% of 2721 companies in the Software industry. The overall financial strength of The Trade Desk is 7 out of 10, which indicates that the financial strength of The Trade Desk is fair.
Profitability and Growth of The Trade Desk
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. The Trade Desk has been profitable 9 over the past 10 years. Its operating margin is 8.5%, which ranks better than 66.76% of 2756 companies in the Software industry.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of The Trade Desk is 31.7%, which ranks better than 85.61% of 2398 companies in the Software industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, The Trade Desk's return on invested capital is 11.02, and its cost of capital is 10.98.
Conclusion
In summary, the stock of The Trade Desk (TTD, Financial) appears to be modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks worse than 55.61% of 1987 companies in the Software industry. To learn more about The Trade Desk stock, you can check out its 30-Year Financials here.
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