Key Takeaways:
- The 2-Minute Valuation Model values The Trade Desk stock at $83/share in 2 years.
- That’s a potential 44% upside from today’s price of around $57/share.
- Despite consistent earnings growth, TTD is trading at its lowest P/E multiple in years after lowering forward guidance in the most recent quarter.
- Get accurate financial data on over 100,000 global stocks for free on TIKR >>>
The digital advertising landscape continues to evolve rapidly, but The Trade Desk (TTD) remains positioned as a leading independent demand-side platform for ad buyers.
After a recent pullback, the stock presents an interesting opportunity for investors seeking exposure to the growing programmatic advertising market.
We think TTD deserves a closer look from growth-focused investors because our valuation analysis says the stock could grow over 20% annually over the next 2 years.
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What is the 2-Minute Valuation Model?
Three core factors drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
Our 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized earnings per share (EPS), and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why TTD Stock Looks Undervalued
Forecast
The Trade Desk is projected to significantly increase its normalized earnings per share over the next few years.
Analysts expect TTD to grow earnings at an average rate of 18% annually over the next 3 years. Adjusted earnings are expected to reach $2.75/share in 2027, up from $1.66/share in 2024.
We’ll use a somewhat conservative estimate for our valuation and assume the company will achieve an EPS of $2.50 by 2027.
This earnings growth is driven by:
- Continued expansion in connected TV advertising
- International market penetration
- Increasing adoption of programmatic advertising
- Strong retention rates among existing clients
- Expansion of partnerships with major media companies
View $TTD’s full analyst estimates >>>
Valuation Multiple
The Trade Desk has traded at an average forward P/E multiple of 57x over the past 3 years, as shown in the historical P/E chart.
Today, the stock is trading near a 3-year low at just 31 times forward earnings:
This dramatic compression in the stock’s multiple presents a potential opportunity for investors.
We’ll use a conservative forward P/E multiple of 33 for our valuation, which is well below the stock’s historical average but slightly above its current level.
Fair Value
Using our 2-Minute Valuation Model and applying a conservative approach:
- Conservative 2027 EPS estimate: $2.50
- Conservative forward P/E multiple: 33x
Expected Normalized EPS ($2.50) * Forward P/E ratio (33x) = Expected Share Price ($82.50)
The 2-year expected share price we would get from this valuation is $83.
Keep in mind, this is just a valuation exercise, and we don’t know for sure what the stock’s price will be in 2 years.
But, the stock does look significantly undervalued today. The stock could have a 44% potential upside over the next two years, and could see a 20% annualized return:
Analysts’ Price Target
The stock’s target price to current price ratio has surged recently because analysts see a lot of upside for the stock today.
Analysts have an average price target of about $109/share for the stock, which is much higher than the stock’s current price of about $57/share.
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Risks to Consider
While our valuation suggests a meaningful upside, investors should be aware of several risks:
- Increased competition in the ad tech space
- Potential regulatory changes affecting digital advertising
- Macro economic slowdowns impacting overall ad spending
- Dependency on the overall digital advertising ecosystem
- Privacy changes that could impact ad-targeting capabilities
TIKR Takeaway
The Trade Desk presents an attractive opportunity for investors seeking exposure to the digital advertising market.
With strong projected earnings growth and a valuation multiple at multi-year lows, TTD stock could deliver returns of over 44% in the next two years.
Is The Trade Desk a buy over the next 24 months? Use TIKR to check the stock’s 5-year growth forecasts and other financial metrics to see if the tech stock looks undervalued today.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
