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What happened
Actions of The trade office (NASDAQ: TTD), an ad technology leader, fell back last month as the company was one of many high-priced growth stocks to drop amid concerns over tightening monetary policy. The Trade Desk losses came even as the broader market continued to advance. Based on data from S&P Global Market Intelligence, the stock ended December down 11%.
As you can see from the chart below, the stock fell sharply at the start of the month and never recouped those losses.
So what
The Trade Desk operates a leading demand-side advertising platform, which means its technology enables brands and ad agencies to launch data-driven advertising campaigns using the company’s proprietary cloud software. .
Image source: Getty Images.
The stock was a big winner in the market, and in December its high valuation became a handicap as investors began to fear that higher interest rates would negatively impact high-valued stocks. growth.
On December 1, the stock fell 8% following a large sell-off in growth stocks, with Federal Reserve Chairman Jerome Powell recommending that the central bank accelerate the cut to its buyout program. bonds, the precursor to an increase in interest rates. This puts pressure on high growth stocks like The Trade Desk, as high priced stocks benefit from a low discount rate, which is directly linked to interest rates. Low discount rates make the profits in the future worth more than when interest rates are high, because money loses value more quickly in a high interest rate environment.
On December 2, the Trade Desk received good news. Needham analyst Laura Martin raised her share price target from $ 110 to $ 115, saying that after meeting with management she was confident in the company’s growth trajectory and that Amazon was not a direct competitor.
During the rest of the month, the headline continued to fluctuate although no news was released on it.
Now what
The decline in the Trade Desk in December came after a sharp rise in November. Ad-tech stock climbed 38% after crushing estimates in its third-quarter earnings report, showing the growth story is still alive and well.
However, concerns about The Trade Desk’s valuation are valid. While the company is solidly profitable, it trades at a price / earnings ratio of around 100, which means the market has high expectations for its future growth. Given the impact of rising interest rates on the stock, investors should keep an eye on Fed stocks this year.
This article represents the opinion of the author, who may disagree with the “official†recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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