Shares of The Trade Desk(NASDAQ: TTD) have been on fire in 2024. Despite its premium valuation, investors are still bullish on the company's prospects as its stock hits new highs above $120 per share.
Wells Fargo analyst Alec Brondolo initiated coverage this week with an overweight (buy) rating and a $150 price target, implying upside of 25%. Four in five analysts rate the stock as a "buy" or "strong buy" with an average price target of $118, according to Yahoo Finance.
Wall Street price targets are a projection of where the stock might trade in the next 12 to 18 months, so they're not very meaningful to to long-term investors. That said, the reasoning behind an analyst's rating can offer valuable information.
Why buy The Trade Desk stock?
The Trade Desk is in a very strong position in the digital advertising market. Its marketplace platform has maintained year-over-year revenue growth of more than 20% in 2024, and its profit margin is expanding again after falling in 2022.
Investors are paying a big premium for the stock, as the analyst acknowledges. But Brondolo sees tailwinds benefiting the business. One near-term catalyst is continued momentum in connected TV advertising where Amazon Prime Video is preparing to accelerate ad spending, which is expected to benefit The Trade Desk.
The company reported accelerating growth in connected TV in the first half of the year, which reflects key partnerships with Disney, Netflix, and Roku. Connected TV is one of the fastest-growing areas in the ad market, which gives The Trade Desk an attractive runway.
The only negative is valuation. The stock's high forward price-to-earnings (P/E) of 75 could limit near-term upside. On the other hand, analysts expect rising margins to deliver annual earnings growth of 41%. If The Trade Desk can deliver on that expectation, its stock still looks like a solid buy.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Netflix, Roku, The Trade Desk, and Walt Disney. The Motley Fool has a disclosure policy.
