What happened

Shares of Datadog (NASDAQ:DDOG) jumped today, up by 6% as of 12:45 p.m. EST, after a Wall Street analyst initiated coverage on the company. Truist Securities has started Datadog stock with a buy rating and assigned a price target of $120, which represents 21% upside from yesterday's close.

So what

Analyst Joel Fishbein acknowledges that Datadog is currently trading at lofty valuation multiples but believes that the company's strong growth and leadership in the growing observability market justifies the premium. Revenue jumped 61% in the third quarter, and sales are forecast to increase by 62% for the full-year 2020.

Green stock chart going up

Image source: Getty Images.

Datadog's cloud-based platform has "superior architecture" and offers better monitoring capabilities compared to its legacy rivals, while companies continue to migrate to the cloud. "We see near-term elongation of sales cycles giving way to a catch-up in demand and a long tail of durable growth for the company," Fishbein wrote in a research note to investors.

Now what

Datadog has not yet scheduled its fourth-quarter earnings release but is expected to report in mid-February. The technology company's outlook calls for revenue of $162 million to $164 million, which should result in adjusted earnings per share of $0.01 to $0.02. Analysts are currently expecting Datadog to report $163.6 million in sales and $0.02 per share in adjusted profits.

On the last earnings call, CFO David Obstler said that Datadog is taking a conservative approach to guidance due to ongoing macroeconomic uncertainties related to the COVID-19 pandemic.

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