Datadog (DDOG) Valuation in Focus After Recent Pullback in Growth Stocks

Datadog (DDOG) shares edged lower this week, dipping nearly 1% on a mix of market rotation and shifting investor sentiment toward software stocks. Despite the move, Datadog's strong multi-year growth metrics remain a focal point for anyone considering the company’s long-term prospects.

See our latest analysis for Datadog.

Datadog’s share price pulled back 14.8% over the past week as growth stocks lost some momentum. The company still sits on a solid three-year total shareholder return of 110%, which hints that longer-term investors remain confident in its fundamental trajectory.

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With Datadog trading below analyst targets and boasting robust revenue and earnings growth, could this recent pullback mean an attractive entry point for long-term investors, or are markets already accounting for all future gains?

Most Popular Narrative: 25% Undervalued

Compared to Datadog's last close price of $157.55, the most widely followed narrative signals a fair value north of $210. This creates an intriguing valuation gap between the current price and long-term expectations.

Ongoing product innovation (for example, autonomous AI agents, enhanced security modules, and expanded log and data observability) is increasing platform breadth and relevance, providing cross-selling opportunities and driving higher average revenue per user and net retention rate. This in turn improves recurring revenue predictability and gross margins.

Read the complete narrative.

Want to know what fuels such bullish optimism? There is a bold set of quantitative assumptions behind this fair value, centered on Datadog’s future profit margins and growth rates. Craving the specifics that drive this forecast? Uncover the details that could surprise you in the full narrative.

Result: Fair Value of $210.91 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, risks remain, including the potential for large AI customers to reduce spending and increased competition from both cloud giants and open-source platforms.

Find out about the key risks to this Datadog narrative.

Another View: Looking at Sales Multiples

While the earlier fair value estimate suggests Datadog is undervalued, a look at its price-to-sales ratio tells a different story. Datadog trades at 17.2 times sales, which is pricier than both its peer average of 10.7x and the software industry average of 4.6x. The fair ratio—where the market could move—stands at 15.4x, so the current number signals some valuation risk if multiples revert. Is enthusiasm for future growth enough to justify paying this premium?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Datadog Narrative

If the story or numbers don’t fully reflect your view, why not dive in and shape a perspective of your own in just minutes? Do it your way

A great starting point for your Datadog research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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