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Datadog, Inc. (DDOG) Hits Fresh High: Is There Still Room to Run?

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Have you been paying attention to shares of Datadog (DDOG - Free Report) ? Shares have been on the move with the stock up 47.1% over the past month. The stock hit a new 52-week high of $120.26 in the previous session. Datadog has gained 58.6% since the start of the year compared to the 46% move for the Zacks Computer and Technology sector and the 57% return for the Zacks Internet - Software industry.

What's Driving the Outperformance?

The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on November 7, 2023, Datadog reported EPS of $0.45 versus consensus estimate of $0.34 while it beat the consensus revenue estimate by 4.63%.

For the current fiscal year, Datadog is expected to post earnings of $1.53 per share on $2.11 billion in revenues. This represents a 56.12% change in EPS on a 25.69% change in revenues. For the next fiscal year, the company is expected to earn $1.71 per share on $2.55 billion in revenues. This represents a year-over-year change of 11.86% and 21.32%, respectively.

Valuation Metrics

Datadog may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.

Datadog has a Value Score of F. The stock's Growth and Momentum Scores are A and B, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 76.3X current fiscal year EPS estimates, which is a premium to the peer industry average of 36.6X. On a trailing cash flow basis, the stock currently trades at 1180.8X versus its peer group's average of 17.5X. Additionally, the stock has a PEG ratio of 2.68. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Datadog currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Datadog meets the list of requirements. Thus, it seems as though Datadog shares could still be poised for more gains ahead.

How Does DDOG Stack Up to the Competition?

Shares of DDOG have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is CrowdStrike (CRWD - Free Report) . CRWD has a Zacks Rank of # 2 (Buy) and a Value Score of F, a Growth Score of A, and a Momentum Score of A.

Earnings were strong last quarter. CrowdStrike beat our consensus estimate by 10.81%, and for the current fiscal year, CRWD is expected to post earnings of $3.48 per share on revenue of $3.05 billion.

Shares of CrowdStrike have gained 29.6% over the past month, and currently trade at a forward P/E of 83.52X and a P/CF of 524.73X.

The Internet - Software industry is in the top 13% of all the industries we have in our universe, so it looks like there are some nice tailwinds for DDOG and CRWD, even beyond their own solid fundamental situation.

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