Trade Desk Inc.’s early days in the S&P 500 have been rocky.
Shares of the advertising-technology provider have dropped 33% since being named to the benchmark index on July 14 and are down 38% since officially joining on July 18, making it the worst-performing stock in the S&P 500 so far this year.
A portion of those losses came before the stock’s inclusion, but the slide has accelerated following its debut.
While joining the S&P 500 is often viewed as a milestone, history shows it does not always translate into stock gains.
An analysis of roughly two dozen new entrants to the index since the start of 2024 shows that less than half were higher a month after joining.
On average, these stocks fell 2.8% in the first month, though gains of 5.3% were more common over a rolling three-month period for the index itself, MarketWatch said in a report.
Pattern of pre-inclusion outperformance
Bernstein analyst Harshita Rawat noted in a late-2023 report that S&P 500 inclusion tends to spark strong gains in the year leading up to the announcement—averaging a 61% cumulative relative return from 2010 to 2024.
However, that momentum usually fades, with the average cumulative relative return flattening out six months after the announcement.
Trade Desk, known for its connected-TV (CTV) ad-tech tools and broader digital advertising capabilities, has been dealing with its own set of challenges beyond the statistical patterns.
The company is facing a slowdown in revenue growth that analysts expect to continue into the current quarter.
Analysts question valuation and growth trends
Jefferies analyst James Heaney described Trade Desk’s growth trajectory as “concerning,” particularly given stronger performances from other advertising peers.
While management has downplayed competitive threats from Amazon.com Inc., Heaney cautioned that competition for ad spend has “undoubtedly increased.”
He expects the company’s stock to lose the premium valuation—over 30 times adjusted EBITDA—it has commanded in recent years.
The concerns intensified after Trade Desk reported quarterly results last week, triggering a record one-day plunge of 38.6%.
The stock’s valuation remains elevated, with a forward 12-month price-to-sales ratio of 8.23, compared with the industry average of 5.46.
Zacks assigns the stock a Value Style Score of F, underscoring the stretched multiples.
Long-term potential but near-term caution
Despite the steep sell-off, some analysts remain constructive on the company’s long-term outlook.
Trade Desk continues to see strong CTV growth, increased adoption of its Kokai platform, and rising international business.
Innovations such as Deal Desk and OpenPath are viewed as potential drivers of sustained market share gains.
However, macroeconomic uncertainty, intensifying competition, and a premium valuation could limit near-term upside.
Heavy reliance on CTV and higher costs add execution risks if revenue growth falters.
According to Zacks, investors already holding Trade Desk shares may choose to retain them, banking on long-term fundamentals, but new investors should wait for a more attractive entry point given the current headwinds.
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