Investors looking for top growth stocks to buy at a discount are in luck. Recent guidance revisions from The Trade Desk (TTD 1.23%) and Veeva Systems (VEEV 1.23%) caused the stock market to hammer their stock prices lower. Both are down more than 20% from the high points they reached in September.
The past month or so hasn’t been a fun time to own these beaten-down stocks, but it could be a great time to be a buyer. A lot has changed over the past few years, but the televisions in our living rooms still show advertisements, and the biopharmaceutical industry is as important to our overall well-being as it has ever been.
The rapid growth rates these companies have displayed in recent years could slacken in the months ahead, but they have what they need to bounce back. Let’s look a little closer to see if these stocks are smart buys after their recent dips.
The Trade Desk
Shares of The Trade Desk are down around 23% from the high they reached in September. The company recently reported third-quarter revenue that grew about 25% year over year to $493 million, which exceeded Wall Street’s and the company’s expectations. As is usually the case, the stock market was more interested in management’s forward outlook.
The average analyst following The Trade Desk expected the company to predict $610 million in fourth-quarter revenue. Instead, management told investors to expect just $580 million. The reduction was a response to “transitory cautiousness” that the comapny began noticing from some of the world’s largest advertisers in mid-October.
The cyclical advertising industry may be heading lower, but we can be fairly confident that The Trade Desk will be a key player when business starts booming again. In Q3, Warner Bros. Discovery announced integration with The Trade Desk’s approach to anonymous user tracking called Unified ID 2.0, or UID2. Comcast‘s big media subsidiary, NBCUniversal, also announced it would employ UID2 on Peacock across all devices, not just connected televisions.
The Trade Desk reported Q3 revenue that rose 25% year over year. A prolonged economic slowdown could pressure growth in the quarters ahead, but the stock is priced as if it’s going to continue growing at this pace for many years to come. The stock has been trading at the lofty valuation of 53 times forward-looking earnings expectations. While I think The Trade Desk can eventually grow into its steep valuation, investors who don’t have a high tolerance for risk might want to stay on the sidelines.
Veeva Systems stock has fallen about 21% from the high point it set in September. Investors hammered the stock in response to the forward outlook shared in its last earnings report.
Veeva Systems markets enterprise software to the highly complicated life sciences industry. This is a great niche for a customized customer relationship management (CRM) service, because relationships between pharmaceutical sales reps and physicians are regulated in ways that most enterprise software companies don’t understand.
After several years in which the investment community threw capital at emerging biotechnology companies with both hands, the life sciences industry has slowed down. During its fiscal Q3 that ends on Dec. 31, Veeva Systems expects total revenue to reach about $615 million. This represents a year-over-year gain of just 9%, which is a much slower growth rate than investors have seen in years past.
Veeva Systems started in 2007 with a CRM custom-tailored to drugmakers, but it’s expanded into clinical operations. Now, more than 450 companies have adopted Veeva’s Vault eTMF service to manage their clinical trial master files.
As of this June, 18 of the top 20 pharmaceutical companies and four of the top six contract research organizations were using Vault eTMF. With tools that the vast majority of the life sciences industry is already familiar with, Veeva’s business benefits from a network effect that could allow it to keep growing at a double-digit pace for many years to come.
Shares of Veeva Systems have been trading for around 38 times forward-looking earnings expectations. This is a steep multiple that makes buying the stock now risky, but not as risky as The Trade Desk. For most growth stock investors, adding some shares to a diversified portfolio at what looks like a bargain price seems like the right decision.
Cory Renauer has positions in The Trade Desk. The Motley Fool has positions in and recommends The Trade Desk, Veeva Systems, and Warner Bros. Discovery. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.