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Here's My Top Stock to Buy for 2019 and Beyond

Daniel Sparks, The Motley Fool

Every now and then an extraordinary growth story comes along, giving investors a chance to buy into an excellent company with undeniable tailwinds and a massive opportunity. The Trade Desk (NASDAQ: TTD), I believe, is one of those opportunities. Even more, thanks to the stock's more than 20% pullback since Oct. 1, shares are now trading at a conservative valuation relative to the company's impressive prospects.

Shares of The Trade Desk, a software-as-a-service company that provides ad buyers with a cloud-based platform to create, manage, and optimize ad campaigns programmatically across various digital ad formats, has seen its shares fall sharply amid October and November's pullback in prices of high-growth tech stocks. But The Trade Desk's business has continued to perform exceptionally. The company recently reported another quarter of strong growth, prompting management to raise its full-year revenue guidance yet again.

Here's why The Trade Desk is my stop stock to buy for 2019 and beyond.

A long, straight road going off into the horizon with the year, 2019, written on it

Image source: Getty Images.

Impressive momentum

The Trade Desk's powerful momentum is undeniable. Just look at some figures from the company's most recent quarter.

  • Q3 revenue rose 50% year over year. 
  • Earnings per share surged 91% year over year.
  • Mobile ad spend on The Trade Desk's platform increased 65% year over year.
  • Connected TV ad spend was up tenfold from the year-ago period.
  • Audio ad spend soared 192% year over year.
  • Customer retention was above 95% for the 19th consecutive quarter.

Looking ahead, management expects more strong performance. When it reported its third-quarter results, management said it now expects full-year 2018 revenue of $464 million or greater, representing 50% year-over-year growth. Previously, management expected full-year revenue of $456 million or greater.

The opportunity

One of the biggest things The Trade Desk has going for it is its enormous addressable market.

Total media ad spending is expected to rise to rise about 7% this year to $629 billion, according to eMarketer. With digital representing less than half of this revenue, there's still immense opportunity for further growth in digital advertising. Indeed, eMarketer estimates digital ad spend will account for half of global ad spend by 2020.

But investors should also note that programmatic is one of the fastest-growing segments within digital advertising. Furthermore, The Trade Desk has proved it can gain market share within programmatic. The company's recent growth has more than doubled the estimated 22% year-over-year growth rate in global programmatic ad spend in 2018, according to a forecast from Magna Global. 

And here's where The Trade Desk's opportunity really gets interesting: connected TV.

"So we've never seen it an opportunity like [connected TV] before, and I don't think we'll ever see one like it, again," Trade Desk CEO Jeff Green said in the company's third-quarter earnings call. "[I]t is the biggest opportunity we've ever seen [and] probably ever will."

The Trade Desk isn't the only company raving about the massive opportunity in connected TV. Streaming TV platform Roku (NASDAQ: ROKU), for instance, is just as bullish on the connected-TV market. Consider this quote from the company's third-quarter shareholder letter: "We believe that all TV will be streamed, and as a result, all TV advertising will eventually be streamed. We believe ads on the Roku platform simply work better than ads on linear TV."

In another part of the letter, Roku called advertising on connected TV the company's "largest opportunity over the long term."

Green argues that The Trade Desk is well positioned to take advantage of this fast-growing advertising channel, since the highly fragmented landscape in the connected TV market enhances the value proposition of The Trade Desk's independent, objective, and nimble programmatic ad-buying platform. That means there's significant opportunity for The Trade Desk to not only continue to grow rapidly but also keep gaining market share.

A person looking at charts on a laptop

Image source: Getty Images.

Valuation

While The Trade Desk's 29% gain since I last called the company a top stock to buy in June means its valuation isn't as cheap today as it was this summer, its outsize earnings-per-share growth over this timeframe means The Trade Desk's price-to-earnings ratio has risen by only 11% since June.

Sure, on the surface, The Trade Desk's price-to-earnings ratio of 77 may seem pricey, but after giving weight to the company's momentum, its big opportunity, and management's bullish view for connected TV, the stock looks compelling at this level.

Yes, there are risks. A transition from linear advertising to streaming TV could take longer than expected. There's also no guarantee The Trade Desk's track record of gaining market share in programmatic advertising is indicative of what the future will look like. If competition proves to be more fierce than expected, investors may have to re-evaluate their growth assumptions for The Trade Desk.

For now, however, The Trade Desk looks poised to keep up its uncanny growth in 2019 and beyond. Indeed, management has been adamant about the strong growth opportunity ahead of The Trade Desk. "While too early to quantify, we are more bullish on 2019 than we have ever been going into another year," said Trade Desk CEO Jeff Green in the company's third-quarter earnings call. 

If The Trade Desk wasn't already my largest holding, I'd be adding to my position.

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Daniel Sparks owns shares of The Trade Desk. The Motley Fool owns shares of and recommends The Trade Desk. The Motley Fool has a disclosure policy.