Is DigitalOcean Holdings, Inc. (NYSE:DOCN) Potentially Undervalued?

DigitalOcean Holdings, Inc. (NYSE:DOCN), might not be a large cap stock, but it led the NYSE gainers with a relatively large price hike in the past couple of weeks. Shareholders may appreciate the recent price jump, but the company still has a way to go before reaching its yearly highs again. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at DigitalOcean Holdings’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for DigitalOcean Holdings

What's The Opportunity In DigitalOcean Holdings?

The stock seems fairly valued at the moment according to our valuation model. It’s trading around 18.37% above our intrinsic value, which means if you buy DigitalOcean Holdings today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is $29.57, there’s only an insignificant downside when the price falls to its real value. Is there another opportunity to buy low in the future? Since DigitalOcean Holdings’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will DigitalOcean Holdings generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With revenues expected to grow by 48% over the next couple of years, the future seems bright for DigitalOcean Holdings. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has already priced in DOCN’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on DOCN, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To that end, you should learn about the 2 warning signs we've spotted with DigitalOcean Holdings (including 1 which is a bit unpleasant).

If you are no longer interested in DigitalOcean Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.