Wall Street Analysts Think The Trade Desk (TTD) Is a Good Investment: Is It?

Core Viewpoint - The article discusses the reliability of Wall Street analysts' recommendations and their impact on stock performance, particularly focusing on The Trade Desk (TTD) and the significance of earnings estimate revisions in determining stock price movements [1][4]. Group 1: Earnings Estimates and Stock Performance - The Zacks Consensus Estimate for The Trade Desk's current year earnings remains unchanged at $1.65, indicating steady analyst views on the company's earnings prospects [2]. - The recent change in consensus estimates, along with other factors, has led to a Zacks Rank of 3 (Hold) for The Trade Desk, suggesting caution in investment decisions [3]. - Empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements, emphasizing the importance of these revisions [4]. Group 2: Brokerage Recommendations - The Trade Desk has an average brokerage recommendation (ABR) of 1.56, which is between Strong Buy and Buy, based on recommendations from 32 brokerage firms [5]. - Of the 32 recommendations, 23 are Strong Buy and 2 are Buy, accounting for 71.9% and 6.3% of all recommendations, respectively [6]. - Despite the favorable ABR, the article cautions against making investment decisions solely based on this information, as studies show limited success of brokerage recommendations in identifying stocks with the best price increase potential [8]. Group 3: Limitations of Brokerage Recommendations - Analysts from brokerage firms tend to exhibit a strong positive bias in their ratings due to vested interests, leading to a higher number of Strong Buy recommendations compared to Strong Sell [9]. - The interests of brokerage firms may not align with those of retail investors, which can mislead investors regarding future stock price movements [10]. - The Zacks Rank, which is based on earnings estimate revisions, is presented as a more reliable indicator of a stock's near-term price performance compared to ABR [11]. Group 4: Differences Between Zacks Rank and ABR - Zacks Rank and ABR are different measures; ABR is based solely on brokerage recommendations, while Zacks Rank is a quantitative model focused on earnings estimate revisions [12]. - The Zacks Rank is timely and reflects the latest earnings estimates, whereas ABR may not always be up-to-date [15].