As of November 7, 2023, Datadog Inc (DDOG, Financial) has seen a daily gain of 28.47% and a 3-month loss of -3.86%. The company has a Loss Per Share of 0.26. These figures raise an important question: is Datadog significantly undervalued? This article aims to answer this question through a comprehensive valuation analysis. Let's dive in.
Company Overview
Datadog Inc (DDOG, Financial) is a cloud-native company that specializes in the analysis of machine data. It offers software-as-a-service that enables clients to monitor and analyze their entire IT infrastructure. The platform can ingest and analyze large amounts of machine-generated data in real time, facilitating a variety of applications throughout a business. Despite the current share price of $102.2, the GF Value estimates the fair value at $254.55, suggesting that Datadog may be significantly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that calculates a stock's intrinsic value based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it may be overvalued and its future return might be poor. Conversely, if it is significantly below the GF Value Line, it may be undervalued with a potential for high future returns. Currently, Datadog's stock appears to be significantly undervalued with a market cap of $33.20 billion.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before purchasing shares. Datadog has a cash-to-debt ratio of 2.47, which ranks worse than 50.66% of 2742 companies in the Software industry. The overall financial strength of Datadog is 6 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Datadog has been profitable 0 times over the past 10 years. Over the past twelve months, the company had a revenue of $1.90 billion and a Loss Per Share of $0.26. Its operating margin is -6.48%, which ranks worse than 65.22% of 2769 companies in the Software industry. Overall, GuruFocus ranks the profitability of Datadog at 4 out of 10, indicating poor profitability.
One of the most important factors in the valuation of a company is growth. The average annual revenue growth of Datadog is 27%, which ranks better than 82.27% of 2397 companies in the Software industry. However, the 3-year average EBITDA growth is 0%, which ranks worse than 0% of 1993 companies in the Software industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Datadog's ROIC is -12.11, and its WACC is 9.14.
Conclusion
In summary, the stock of Datadog appears to be significantly undervalued. The company's financial condition is fair, but its profitability is poor. Its growth ranks worse than 0% of 1993 companies in the Software industry. To learn more about Datadog stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
