Datadog, Inc. (DDOG) is Drawing Interest from Investors: Essential Information You Need to Know

Datadog (DDOG) Draws Investor Interest

Datadog (DDOG) has recently become one of the most searched stocks on Zacks.com. If you're considering this stock, it's important to review several key elements that could impact its performance in the short term.

Recent Stock Performance

Over the past month, Datadog, a leader in data analytics and cloud monitoring, saw its shares decline by 9.1%. In comparison, the Zacks S&P 500 composite index rose by 0.6%, while the Zacks Internet - Software sector, which includes Datadog, fell by 9.8%. This raises the question: What direction might Datadog's stock take next?

What Drives Stock Trends?

Although news headlines or speculation about significant changes in a company's outlook can cause short-term price swings, long-term investors tend to focus on fundamental factors when making decisions.

Earnings Estimate Revisions: A Key Indicator

At Zacks, the primary focus is on changes in earnings forecasts. The rationale is that a stock's fair value is closely tied to the present value of its expected future earnings.

We monitor how analysts update their earnings predictions in response to recent business developments. When analysts raise their estimates, it often signals a higher fair value, which can attract buyers and push the stock price up. Research consistently shows a strong link between earnings estimate revisions and short-term stock price movements.

Currently, Datadog is projected to earn $0.50 per share this quarter, an 8.7% increase from the previous year. However, over the past month, the Zacks Consensus Estimate has dropped by 23.4%.

For the full fiscal year, the consensus estimate stands at $2.12 per share, up 3.4% year-over-year, but this figure has decreased by 35.1% in the last 30 days.

Looking ahead to the next fiscal year, analysts expect earnings of $2.59 per share, which would be a 21.9% increase from the prior year. This estimate has been revised down by 4.8% over the past month.

With a strong, independently audited track record, the Zacks Rank system is a reliable tool for predicting near-term stock performance, as it incorporates earnings estimate changes. Based on recent estimate movements and other related factors, Datadog currently holds a Zacks Rank #3 (Hold).

The following chart illustrates the trend in Datadog's forward 12-month consensus EPS estimate:

12-Month EPS Trend

Revenue Growth Outlook

While earnings growth is a crucial measure of financial health, sustained profit increases are difficult without revenue expansion. Understanding a company's revenue growth prospects is therefore essential.

For Datadog, the consensus sales estimate for the current quarter is $956.97 million, reflecting a 25.7% increase from a year ago. For the current and next fiscal years, revenue estimates are $4.08 billion and $4.83 billion, representing growth rates of 19.2% and 18.3%, respectively.

Recent Results and Earnings Surprises

In the most recent quarter, Datadog reported revenue of $953.19 million, a 29.2% increase year-over-year. Earnings per share came in at $0.59, compared to $0.49 in the same period last year.

These results exceeded the Zacks Consensus Estimate of $914.6 million in revenue by 4.22%, and the EPS beat expectations by 7.27%.

Datadog has surpassed consensus EPS and revenue estimates in each of the last four quarters.

Valuation Analysis

Evaluating a stock's valuation is essential for making informed investment decisions. It's important to determine whether the current share price accurately reflects the company's intrinsic value and growth potential.

Comparing valuation ratios such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF) to historical averages and industry peers helps investors assess whether a stock is overvalued, fairly valued, or undervalued.

The Zacks Value Style Score, which incorporates both traditional and alternative valuation metrics, ranks stocks from A to F. Datadog currently receives an F, indicating it is trading at a premium compared to its peers.

Summary

The information above, along with additional resources on Zacks.com, can help you decide whether to pay attention to the current market buzz around Datadog. However, its Zacks Rank #3 suggests the stock may perform in line with the broader market in the near future.

Top Stock Picks from Zacks

Zacks' research team has identified five stocks with the potential to double in value in the coming months. Among these, Research Director Sheraz Mian highlights one standout pick—a lesser-known satellite communications company poised for significant growth as the space industry expands. Analysts predict a major revenue surge in 2025. While not every top pick achieves such results, this company could outperform previous winners like Hims & Hers Health, which soared by 209%.