Stock of the Week: A Tech Platform With Red-Hot Growth

|January 13, 2024

In each of the last two years, there’s been a pivot in the market in January.

That means it’s wise to simply watch things unfold before diving into anything.

That said, one company has popped up on my radar… and it’s hitting a lot of the numbers I want to see in a Stock of the Week.

You’ve likely heard of this digital advertising platform. It’s got a market cap of $35 billion and has grown revenues at a scorching 43% since going public in 2016.

There’s a lot of money in digital advertising… which is why earnings and revenue are forecast to keep growing.

Plus, the company is debt-free and – most importantly – meets my No. 1 metric for a stock… Its cash return on capital invested (CROCI) is a strong 21.6%.

Get all the details on the company – including the ticker – in my latest video.

Click on the image below to watch it.

Transcript

Stock of the Week, my friends… and for the last two years, we know that in January there’s been a pivot in the market. So I’m taking a breath this week and just watching things before diving into anything. That said, The Trade Desk comes up as one hitting a lot of our numbers for a Stock of the Week.

Now, The Trade Desk is one you’ve probably heard of already. It’s actually a rather large company. It’s increased revenue at a rate of 43% since the company went public in 2016. It provides a platform for digital advertising. Its services are available… well, they’re designed to help advertisers and marketers manage and optimize their digital advertising campaigns. And there’s a lot of that going on.

But, more importantly, whilst the company’s headquartered in Ventura, California, it’s got offices across North America, Europe and Asia-Pacific. So it’s got that global reach.

It generates revenues from fees based on a percentage of what clients spend on advertising. It’s forecast to continue growing earnings and revenues – and to grow them significantly. The market cap is $35 billion. There’s a lot of money in advertising and marketing, and it’s a debt-free company as well.

Let’s just have a deep dive into some of those numbers.

On my proprietary Growth-Value-Income algorithm – which measures the valuation of a company, the revenue growth of a company, the dividend yields of a company – we’ve got this as a 7. As long as it’s a 7, 8, 9 or 10, it meets our minimum criteria. So that box is ticked.

Now, forecast P/E is a bit expensive. In other words, the current share price is at 56 times the expected profits of the company. So that does make it a bit expensive. You’re paying $56 for every $1 of future expected profits.

Cash return on capital invested… not too bad. 21.6% is the percentage here. Now, you can read more right here about why CROCI – cash return on capital invested – is important. It’s used by Deutsche Bank and Goldman Sachs Wealth Management for their wealthiest clients. It’s got a really good number, this company.

Sortino is a bit weak. It’s a measure of the average return versus the risk. I would’ve preferred it being higher. And, of course, as you know if you’re a part of my GVI Investor service, I do a lot of due diligence on these numbers. Well, my team does, and then they give me a shortlist. And this one is a bit weak on the Sortino.

Volatility is a tiny bit high, and alpha should be positive – in other words, outperforming the market. But nevertheless, it’s a Stock of the Week because it’s got enough boxes ticked.

Now, the company has pretty much gone sideways in share price for the last 3 1/2 years, which would argue in favor of – given its growth – some upside moves.

And that’s what I’m looking for with this one, some upside moves. And, in particular, I see the momentum. The monthly MACD (moving average convergence/divergence), the momentum is fairly neutral. So, again, we’re not fighting a headwind. We’re not getting a tailwind, but we’re not fighting a headwind. And that’s important.

And whilst on a discounted cash flow basis it looks slightly overvalued, earnings are, as I’ve said before, forecast to grow significantly.

So there’s a lot going for this company. But, more importantly, this gives you a bit of a snippet, a bit of a “tip of the iceberg” of some of the factors that I look for in companies such as this.

Okay, when we’re looking at stocks… looking at value, growth, income, cash flow, all of those factors… we want as many of those boxes ticked as possible.

Thank you.