Market Participants Recognise The Trade Desk, Inc.'s (NASDAQ:TTD) Revenues

Trade Desk, Inc. Class A -4.34%

Trade Desk, Inc. Class A




The Trade Desk, Inc.'s (NASDAQ:TTD) price-to-sales (or "P/S") ratio of 19.7x may look like a poor investment opportunity when you consider close to half the companies in the Media industry in the United States have P/S ratios below 1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Trade Desk

NasdaqGM:TTD Price to Sales Ratio vs Industry December 29th 2023

What Does Trade Desk's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Trade Desk has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Trade Desk will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Trade Desk would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 23%. The latest three year period has also seen an excellent 150% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 22% per annum over the next three years. With the industry only predicted to deliver 4.0% per annum, the company is positioned for a stronger revenue result.

With this information, we can see why Trade Desk is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Trade Desk's P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Trade Desk maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Media industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Trade Desk with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Trade Desk's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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