This magnificent growth stock just made a big move, but should you buy it?

Actions of Trade office (TTD 0.93%) rose more than 12% in a single session after the company released its 2024 second quarter results on August 8. The big move wasn’t surprising, as the programmatic ad provider posted stronger-than-expected growth.

The latest pop from the Trade Desk means the stock is now up 36% this year. Plus, it’s trading at a steep valuation right now. Does this mean it’s too late for investors to buy this growth stock? Or can they still consider adding The Trade Desk to their portfolios pending further benefits? Let’s find out.

The trade office is stepping on the gas

Trade Desk reported revenue of $585 million in Q2, up 26 percent from the same quarter last year, when its revenue rose 23 percent year over year, indicating the company’s growth is accelerating. Meanwhile, adjusted earnings rose 39% year-over-year to $0.39 per share. Wall Street would have settled for earnings of $0.36 per share on revenue of $578 million.

However, the company offset those estimates thanks to an acceleration in connected television (CTV) advertising. Trade Desk’s data-driven programmatic advertising platform enables advertisers to purchase ad inventory in real-time and serve ads across multiple channels, such as CTV channels, online video, mobile and e-commerce channels, among others.

The company operates in a rapidly growing market. The global programmatic advertising market is expected to generate $595 billion in revenue this year, a number that is expected to grow to $779 billion in 2028. More importantly, The Trade Desk has integrated artificial intelligence (AI) in its platform to enable better audience targeting. for advertisers and generate higher returns on advertising dollars spent.

On the most recent earnings conference call, CEO Jeff Green pointed out that clients who adopted The Trade Desk’s AI advertising platform, Kokai, saw a 70% increase in reach, along with a 27% improvement of cost per acquisition. So it’s no surprise that The Trade Desk grew at an improved rate last quarter compared to the same period last year.

The bright side is that The Trade Desk believes its total addressable market could eventually be worth $1 trillion. As such, it will not be surprising to see the company maintain its healthy long-term growth levels and grow at a faster pace than market expectations. For example, The Trade Desk expects revenue for its quarter ending in September to be at least $618 million. That would be a 25% increase from the year-ago period and well above consensus expectations of $605 million.

However, there is a good chance that The Trade Desk will exceed its own expectations due to the impressive traction it is gaining in the programmatic advertising space. Not surprisingly, analysts have raised their earnings growth expectations from the company.

TTD EPS estimates for current fiscal year data by YCharts. EPS = earnings per share.

But is the stock worth buying now?

The Trade Desk’s solid growth in 2024 means it now trades at 23x expensive sales. This is significantly higher than the US tech sector average of 7.3. Its trailing earnings multiple of 194 and forward earnings multiple of 130 also indicate a steep valuation.

However, there is one valuation metric that tells us growth investors may still consider buying The Trade Desk. The stock’s price-to-earnings-growth (PEG) ratio, which takes into account potential earnings growth, is 0.55, as we can see in the chart below.

TTD PEG Ratio data (1 year ago) by YCharts. PEG ratio = price/earnings-growth ratio.

The PEG ratio is a forward-looking valuation measure calculated by dividing a company’s price-to-earnings ratio by the expected earnings growth it could see in future years. A reading of less than 1 means a stock is undervalued relative to the growth it could produce.

So investors looking to add a growth stock to their portfolios may want to take a closer look at The Trade Desk, despite its rich earnings and sales multiples. Those concerned about its valuation would do well to capitalize on any potential pullbacks to buy the stock to take advantage of the healthy long-term growth opportunity it holds.