Why Did Datadog Stock Climb 10% in February? – The Motley Fool


Returns as of 03/08/2022
Returns as of 03/08/2022
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
Shares of Datadog ( DDOG 0.86% ) rose 10.3% in February, according to data from S&P Global Market Intelligence. The tech stock rose sharply after a strong earnings report early in the month before giving back some of those gains in the market sell-off.
Datadog continues to impress with its operational results. The company reported earnings on Feb. 10, and the news was basically all positive. It boasted 84% revenue growth, positive net profit, and $250 million of free cash flow. This exceeded analyst estimates for both sales and earnings by a wide margin. Datadog also reported great traction with larger customers. It more than doubled the number of subscribers that produce at least $1 million in annual recurring revenue.
Image source: Getty Images.
Datadog continues to add new products to a strong suite that’s already recognized as a leader in the application performance monitoring industry. That’s creating an economic moat as the company’s products play an increasingly important role for customers.
Despite all that, volatility still played a massive role here. Since the big bounce on positive earnings, the stock has dropped nearly 20% from its February high. The market downturn is hitting high-valuation tech stocks. Investors can see that even strongly performing businesses won’t be spared.
First-quarter results are a couple of months away, so Datadog stock will be at the mercy of market forces for a while. It’s expensive, with a price-to-sales ratio of 45 and forward price-to-earnings ratio near 300. That will most likely fuel high volatility in the near term, especially as the stock market reacts to the conflict in Ukraine and the Federal Reserve continuing to tighten its monetary policy.
That’s not necessarily a reason for investors to shy away. This is a classic growth stock with massive potential and an aggressive valuation. Risk and reward are both high relative to other types of stocks. Investors just need to feel comfortable with some potential short-term drops in exchange for the long-term opportunity. It might also be smart to keep some cash on the sidelines in case more shares can be bought at a lower price in the future.

Why do we invest this way? Learn More
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Market-beating stocks from our award-winning service.
Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 03/08/2022.
Discounted offers are only available to new members. Stock Advisor list price is $199 per year.
Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns as of January 1, 2021.
Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool’s premium services.

Making the world smarter, happier, and richer.

Market data powered by Xignite.