Is Datadog (DDOG) Pricing Reflect Its DCF Upside After Recent Share Price Weakness

• If you are wondering whether Datadog’s current share price matches its long term potential, you are not alone. This article focuses squarely on what you might be paying versus what you are getting.
• Datadog’s share price closed at US$127.33, with returns of 10.0% over the past week, 0.6% over the past month, a 4.8% decline year to date and a 14.0% decline over the past year, set against a 43.5% and 23.5% return over the past 3 and 5 years respectively.
• Recent market attention on Datadog has been influenced by ongoing interest in software and cloud monitoring companies, as investors reassess how much they are willing to pay for recurring revenue and growth potential. Broader sector moves and sentiment around software valuations help frame where Datadog now sits in terms of perceived risk and reward.
• On our checks, Datadog scores 2 out of 6 on valuation, meaning it screens as undervalued on two of six measures. You can see the full breakdown in our valuation score. Next we will walk through the main valuation approaches used for Datadog and then finish with a way of looking at value that goes beyond any single metric.

Datadog scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Datadog Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model projects a company’s future cash flows and discounts them back to today, to estimate what the entire business might be worth in present value terms.

For Datadog, the model uses a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The company’s last twelve month free cash flow is about $928.1m. Analyst estimates and subsequent extrapolations point to projected free cash flow of about $2.99b in 2030, with intermediate years between 2026 and 2035 ranging from roughly $1.08b to $5.16b before discounting.

After discounting these projected cash flows back to today in $, the model arrives at an estimated intrinsic value of about $184.37 per share. Compared with the recent share price of $127.33, this implies the stock trades at a 30.9% discount to that DCF estimate, which screens as undervalued on this model alone.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Datadog is undervalued by 30.9%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Datadog.

Approach 2: Datadog Price vs Sales

For growing, profitable software companies, the P/S multiple is often a useful yardstick because revenue is usually less affected by accounting choices than earnings and it can help you compare what investors are paying for each dollar of sales.

In general, higher growth and lower perceived risk can justify a higher P/S multiple, while slower growth or higher uncertainty tend to support a lower, more conservative range. That is why it helps to look at Datadog’s P/S in context rather than in isolation.

Datadog currently trades on a P/S of 13.10x. This sits well above the broader Software industry average of 3.67x and also above the peer group average of 7.07x. Simply Wall St’s Fair Ratio for Datadog is 11.66x. This is its proprietary estimate of a suitable P/S based on factors such as earnings growth, industry, profit margin, market cap and risk profile. Because it folds these fundamentals into a single figure, the Fair Ratio can be more informative than a simple comparison with peers or the wider industry.

Against that Fair Ratio, Datadog’s current 13.10x P/S screens as higher, suggesting the shares look overvalued on this metric.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Datadog Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. With Narratives, you tell a clear story about Datadog, link that story to a set of revenue, earnings and margin forecasts, and then see the Fair Value that results, all inside Simply Wall St’s Community page. You can compare that Fair Value to the current share price, watch it update automatically when new news or earnings arrive, and see how a more optimistic Datadog view with a Fair Value of about US$257.52 or US$208.49 can sit alongside a more cautious view closer to US$169.92. This gives you a simple, visual way to decide whether the current price looks high or low against the Narrative you actually believe.

Do you think there's more to the story for Datadog? Head over to our Community to see what others are saying!

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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