We recently published a list of 10 Stocks with Potential to Explode in 2025. In this article, we are going to take a look at where The Trade Desk, Inc. (NASDAQ:TTD) stands against other stocks with potential to explode in 2025.
The recent pullback in US equities can be a sign of an aging bull market and a reaction to developments happening around trade policy, as per Jurrien Timmer, Director of Global Macro for Fidelity Management & Research Company. Corrections and volatility are the factors investors need to consider to capture any sort of long-term market returns. The current volatility has got many investors worried regarding the prospects of losing their gains.
Pullbacks Are Part and Parcel
As of March 11, the S&P 500 Index declined 9.3% from its all-time closing high it touched in mid-February, says Timmer. According to him, the market has seen a decline of 5% or more in 93% of calendar years since the year 1980, and it has suffered a 10% or more drop in 47% over the same calendar years. Yet, its average calendar-year return over a similar period has been ~13.3%. This means that pullbacks are quite common in the equity markets. The broader market has seen recovery from every one of those periods and has delivered healthy long-term returns.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Expert’s Views on Current Market Dynamics
Timmer opines that bull markets generally take place when there are expectations that the news can’t get any worse. The markets are forward-looking, meaning that stocks always showcase the expectations regarding the future. Even if the current news is not favorable, if investors think that tomorrow’s news will be less bad, the prices might start to increase. In this stage, the market continues to increase despite a decline in profits or earnings. This reflects that the higher P/E ratios have been fueling the market. After 2 – 4 quarters, the profits start to show up. Now, as the bull market matures, earnings growth tends to take charge, with the PE ratios beginning to decline.
As per Timmer, the market investors are in this environment. The earnings growth remains in the double digits, but since investors are getting into the later innings of the bull market, the P/E ratios have now been stretched. The broader market is slightly more prone to fluctuations or volatility. Apart from these trends, the market continues to process the impact of current trade policy shifts. Overall, Timmer said that across all different cycles, booms, crises, and busts, the markets eventually recovered and touched new all-time highs.
Our Methodology
To list the 10 Stocks with Potential to Explode in 2025, we sifted through several online rankings to shortlist the stocks that analysts see significant upside to, as of March 18. Next, we mentioned hedge fund sentiment around each stock, as of Q4 2024. Finally, the stocks were arranged in ascending order of their hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A large array of computer screens and tech equipment representing the technology company’s self-service cloud-based platform.
The Trade Desk, Inc. (NASDAQ:TTD)
Average Upside Potential: ~101.9%
Number of Hedge Fund Holders: 63
The Trade Desk, Inc. (NASDAQ:TTD) operates as a technology company. Truist Securities expressed its confidence in the company’s stock, maintaining a “Buy” rating and a price objective of $130.00. As per the analyst, the issues with Kokai remain temporary instead of structural, with anticipations for quicker adoption improvement. The analyst has also acknowledged Amazon’s DSP as a rising competitor in the broader advertising technology space. That being said, The Trade Desk, Inc. (NASDAQ:TTD)’s strong return on ad spend performance, independence, cross-channel capabilities, and customer service are expected to allow it to succeed alongside Amazon.
Overall, the firm’s rating and price target stems from the belief in The Trade Desk, Inc. (NASDAQ:TTD)’s ability to overcome current challenges as well as to continue to thrive in the competitive digital advertising landscape. Notably, the company outpaced nearly every segment of digital advertising in 2024, delivering $2.4 billion of revenue, exhibiting accelerated growth of 26% YoY as well as a record $12 billion of spending on its platform.
Rowan Street Capital, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“The Trade Desk (TTD): Investment Initiated: March 2020
Internal Rate of Return (IRR): 54%
The Trade Desk has been our most successful investment to date. March 2025 will mark five years since we opportunistically initiated our position at a cost basis of $17.40 (split-adjusted). Since then, TTD has appreciated more than sevenfold, delivering an annualized return of approximately 54%.
These exceptional results far outpace the company’s strong fundamental growth, with revenues and earnings compounding at approximately 25% annually over this period (refer to the table below). The primary reason for this outsized return lies in the price at which we were able to acquire TTD during the early days of the pandemic, when market fears briefly drove it down to just 10x revenues. Today, the valuation has expanded significantly to approximately 25x revenues, amplifying our returns…” (Click here to read the full text)
Overall, TTD ranks 6th on our list of stocks with potential to explode in 2025. While we acknowledge the potential of TTD as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than TTD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
