Trade Desk Inc (NASDAQ: TTD) opened 15% up on Tuesday following news that the advertising tech firm will join the S&P 500 index on July 18.
The multinational based out of Ventura, CA, will replace software maker Ansys, which is being acquired by Synopsys for about $35 billion, on the benchmark index.
S&P 500 inclusion marks a major milestone for TTD shares that have been rather volatile this year, still down nearly 35% versus their year-to-date high at the time of writing.
However, following an explosive move to the upside after today’s announcement, global investors are questioning if the related upside is baked into the Trade Desk stock already.
Why is S&P 500 inclusion a big positive for Trade Desk Stock?
Index inclusion is meaningful for TTD stock as it often proves a structural catalyst.
Index funds and ETFs that track the S&P 500 will now be required to invest in Trade Desk, creating mechanical demand and boosting liquidity.
Joining the benchmark S&P 500 index typically leads to a more stable institutional investor base, lower cost of capital, and improved sentiment at large in the subsequent weeks and months.
For the Nasdaq-listed firm, it’s a validation of its market relevance in the digital advertising space, where it competes with giants like Google and Amazon, as well as a vote of confidence in its long-term growth trajectory.
Including today’s surge, Trade Desk shares are up nearly 90% versus their YTD low.
CFRA raises price target on TTD shares
S&P 500 inclusion news made CFRA analysts raise their price target on TTD shares to $110, which translates to potential for another 30% upside from current levels.
The investment firm cited strong fundamentals, including 25% revenue growth over the past year and gross margins above 80% for its bullish view on Trade Desk stock.
CFRA believes the company will accelerate growth further to the high-teens by 2025, supported by innovations like UID2 and the Kokai AI platform.
Its analysts agreed that Trade Desk is not inexpensive to own at a forward price-to-earnings ratio of nearly 80, but said the company’s leadership in programmatic advertising justifies it somewhat.
Is it worth investing in Trade Desk in July?
Trade Desk stock continues to look attractive despite its monster rally in recent months, also because it offers strong cash flow and has no debt at all on its balance sheet.
Wall Street firms currently have a consensus “moderate buy” rating on TTD shares, according to data from Barchart, with price targets going as high as $145, or up more than 70% from current levels.
The ad-tech firm does not currently pay a dividend, though.
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