What happened
Shares of Datadog (DDOG 3.19%) were never able to gain any momentum on Wednesday, falling by as much as 5.9%. By the time the market closed, shares had recovered somewhat, but the stock was still down by 4.3%.
What was curious about the move is that several analysts addressed the prospects of the cloud stock Wednesday, and nearly all of them had good things to say.
NASDAQ: DDOG
Key Data Points
So what
Wedbush analyst Taz Koujalgi initiated coverage of Datadog with an outperform (buy) rating and $101 price target, suggesting potential upside of 40%. The analyst cited a "long runway for growth" due to the company's "unique combination" of growth at scale and its 20%-plus free cash flow margins.
Stifel analyst Brad Reback lowered the firm's price target on Datadog's peer MongoDB to $256 from $320 while maintaining a buy rating on the shares. While that may not look good at first glance, it represents a potential 255% gain for investors relative to Tuesday's closing price. Furthermore, Reback believes that MongoDB's "consumption commentary" from its fiscal third quarter can be viewed as positive news for Datadog.
On the more bullish side of the house, Oppenheimer analyst Ittai Kidron called Datadog a top pick for 2023, and upgraded the stock to outperform (buy) with a $105 price target, or roughly 46% upside. The analyst called the company's unified, real-time view "mission critical," saying its solutions should make Datadog somewhat resilient to macroeconomic headwinds. Furthermore, its shift into cybersecurity represents a significant expansion of the company's total addressable market.
Now what
It's rare for Wall Street analysts to agree on anything, and when they do, retail investors should sit up and take notice. Datadog's platform monitors essential systems, alerting developers of issues before they become critical and force expensive downtime.
That said, despite its 61% decline over the past year, Datadog stock isn't cheap by traditional metrics. It's currently trading for 7 times next year's sales -- when a reasonable price-to-sales ratio is between 1 and 2. That said, the company is sticking by its forecast for year-over-year revenue growth of 60% in 2022. With that kind of growth, Datadog is worthy of a premium.
