When Should You Buy DigitalOcean Holdings, Inc. (NYSE:DOCN)?

While DigitalOcean Holdings, Inc. (NYSE:DOCN) might not be the most widely known stock at the moment, it led the NYSE gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Today I will analyse the most recent data on DigitalOcean Holdings’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for DigitalOcean Holdings

What's The Opportunity In DigitalOcean Holdings?

According to my valuation model, the stock is currently overvalued by about 24%, trading at US$48.68 compared to my intrinsic value of $39.24. Not the best news for investors looking to buy! But, is there another opportunity to buy low in the future? Given that DigitalOcean Holdings’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of DigitalOcean Holdings look like?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. In DigitalOcean Holdings' case, its revenues over the next few years are expected to grow by 63%, indicating a highly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in DOCN’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe DOCN should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on DOCN for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for DOCN, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example - DigitalOcean Holdings has 1 warning sign we think you should be aware of.

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.