The Trade Desk stock: Bullish patterns emerge despite mounting business woes

The Trade Desk stock has been in a freefall this year and is hovering at the lowest level since January 2019. It has slumped from a record high of $141 to the current $13.5, with its market cap falling from a record high of $63.35 billion to the current $6.38 billion. This retreat has made it a bargain in key metrics, with the island reversal pattern pointing to a rebound.

The Trade Desk stock is showing bottoming signs

Technicals suggest the TTD stock is showing bottoming signs, which may lead to a strong bullish breakout in the near term. The most notable one is the fact that it formed a big down-gap earlier this month when it published its financial results. After that, it has remained inside a narrow range, forming an island reversal pattern, a common bullish reversal sign in technical analysis.

The Relative Strength Index (RSI) has started forming a bullish diverge pattern as it moves from a low of 27 on August 10 to the current 36. Similarly, the two lines of the MACD indicator have formed a bullish crossover pattern, a sign that investors have started to accumulate the stock. 

Therefore, the stock will likely rebound, potentially to the psychological level of $20. A drop below the year-to-date low of $13 will invalidate the bullish outlook.

TTD stock chart | Source: TradingView 

The Trade Desk published weak financial results 

The TTD stock has slumped after the company published weak financial results, which missed its own expectations and those of its analysts.

Its results showed that its revenue rose modestly in the quarter to $715 million from $694 million in the same period last year. Its half-year revenue rose by 7% to $1.4 billion, while its forward estimates were subdued. It was the second consecutive quarter that the company’s earnings came short of expectations. 

Since then, analysts have reduced their estimates. Now, analysts estimate that the third-quarter revenue will come in at $650 million, down by 12% from a year earlier. It will then weaken by 18% to $693 million, bringing its annual revenue down by 5.2% YoY to $2.7 billion. 

The management is working on turning around its business. For example, it has inked some major deals with companies like Dentsu and Databricks, and moved into the travel industry.

These numbers have made it a highly undervalued company. It has a forward price-to-earnings ratio of 11.6, down sharply from the five-year average of 53. It was also lower than the sector median of 13.6. This cheap valuation explains why the company is boosting its share repurchase program. It repurchased shares worth $78 million in the second quarter and has $269 million available to buy.

Therefore, there are two main potential scenarios for the stock. It may continue moving downwards amid its business struggles. Alternatively, technicals suggest that it may bounce back in the near term since it has formed a bullish divergence and an island reversal.