After climbing back above $ 80 per share, what’s next for Stock Trade Desk (TTD)? Shares of the online advertising platform could experience a pop after it announced its results for the previous fiscal quarter before it opens on August 9.
With its very high forward price-to-sell (P / E) ratio (134.6x), it makes sense for investors to point out that its long-term potential is more than valued in equities. It could retain its rich valuation if the stock market remains broadly stable. However, a market correction over the next few months could send it considerably lower. (See the Trade Desk stock charts on TipRanks)
So far in 2021, an extended sale has yet to take place. However, given the risk factors that could persist until 2022 (delta variant of COVID-19, inflation / interest rate concerns), the risk of potential volatility tends to increase.
The problem for Trade Desk? Much like other tech names with very high valuations, this stock could drop significantly from today’s prices, while still trading at a forward multiple reflecting its growth prospects.
Outlook more than factored into the TTD share price
One factor has played a big role in Trade Desk’s recent strong performance. At the end of June, Google Alphabet (GOOGL) announced a two-year delay in removing third-party cookies from its Chrome browser.
Obviously, this is good news, as it postponed a risk that weighed on the TTD title. Along with this, the launch of its advertising platform Solimar has also helped improve investor sentiment for equities.
This new platform could strengthen TTD’s ability to stay ahead of the so-called open Internet advertising market. In other words, the open Internet is the online advertising market outside of Google, Facebook (FB), and other “walled garden” advertising networks.
As mentioned above, if the markets remain stable, the booming outlook could help the Trade Desk continue to return to its all-time high ($ 97.28 per share). But what if the markets start to go down? This could be one of the names that is undergoing heavy multiple compression.
If the direction of the market changes, expect this stock to sell as well
Again, so far the Delta variant and inflation concerns haven’t really had an impact on the overall direction of the market yet. With the exception of two brief pullbacks in February and May, indexes such as the S&P 500 and Nasdaq 100 have continued to rise this year.
This may not be the case in a few months. Whether it’s the worsening situation of the COVID-19 variant, inflation that lasts longer than “transient” inflation leading to interest rate hikes sooner than expected, or a Another key factor is that the risk of a correction, collapse or liquidation increases.
In turn, possible sharp declines are ahead for TTD stocks. A change in the current environment can mean severe multiple compression. These risks include a “growth at any cost” investment philosophy and near zero interest rates. That is to say, a reduction in its P / E ratio over time. What bad? Stocks could fall in double digits and remain valued in line with above average sales and earnings growth rates.
For example, what if Trade Desk goes from 134.6 times its expected earnings in 2021 to 75 times its expected earnings in 2021. Multiply 62 cents (analyst consensus for earnings per share this year) by 75 , and TTD’s valuation goes from $ 84 per share to $ 46.50 per share. That’s almost 45% below current prices.
What Analysts Are Saying About TTD Stock
According to TipRanks, TTD stock has a strong buy consensus rating. Out of 13 analyst ratings, 10 give it a buy rating, 3 analysts a conservation rating and 0 a sell rating.
As for price targets, The Trading Desk’s average price target today is $ 81.21 per share, which implies a decrease of approximately 3.37% from today’s prices. ‘hui. Analysts’ price targets range from a low of $ 40 per share to a high of $ 100 per share.
Conclusion: Significant downside risk for stocks on the trading desk if markets retreat
If the markets overcome today’s risks and continue to rise gradually, Trade Desk actions may also be able to. As it continues to advance by dominating the open internet advertising market, it may return to its all-time high.
On the other hand, what if the markets correct themselves in the coming months? Expect TTD stock to be one of the names that pulls back significantly as it fails to keep a multiple of futures earnings off the charts.
Disclosure: Thomas Niel does not hold any positions in the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained in this document is for informational purposes only. Nothing in this article should be construed as a solicitation to buy or sell securities.