Investors might want to bet on Datadog (DDOG Quick QuoteDDOG - Free Report) , as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.

Analysts' growing optimism on the earnings prospects of this data analytics and cloud monitoring company is driving estimates higher, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Datadog, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

The company is expected to earn $0.50 per share for the current quarter, which represents a year-over-year change of +8.7%.

Over the last 30 days, the Zacks Consensus Estimate for Datadog has increased 11.36% because one estimate has moved higher compared to no negative revisions.

Current-Year Estimate Revisions

For the full year, the earnings estimate of $2.18 per share represents a change of +6.3% from the year-ago number.

There has been an encouraging trend in estimate revisions for the current year as well. Over the past month, three estimates have moved up for Datadog versus no negative revisions. This has pushed the consensus estimate 13.41% higher.

Favorable Zacks Rank

Thanks to promising estimate revisions, Datadog currently carries a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on Datadog because of its solid estimate revisions, as evident from the stock's 66.4% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.