Is Dynatrace a Bargain After Latest Quarterly Results and Share Price Dip?

Thinking about what to do with Dynatrace stock? You are not alone. The company’s shares closed at $49.57 recently, and investors keep asking whether now is the moment to buy in or hold. The numbers offer plenty to consider, especially if you are the type to keep score. Dynatrace currently boasts a value score of 5 out of 6 across major undervaluation checks.

If you have been watching the price charts, you might notice Dynatrace has nudged up just 0.1% over the last week, though it is still down 0.9% over the past month and off 8.8% so far this year. Looking at a longer timeframe, the story shifts: in the past three years, the stock is up a strong 36.1%, and even over five years, it has delivered a respectable 15.1%. This kind of performance can prompt questions about whether the market is responding to changes in the tech landscape or shifts in how risk is being perceived.

Of course, numbers only tell part of the story when it comes to valuation. Is Dynatrace really undervalued, or does the price already factor in its future prospects? Next, let’s break down the main valuation approaches analysts use, before revealing an even more insightful way to make sense of what Dynatrace is truly worth.

Why Dynatrace is lagging behind its peers

Approach 1: Dynatrace Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a popular approach for valuing stocks by projecting the company’s expected future cash flows, then discounting those projections back to today’s value using a relevant interest rate. This method helps investors estimate what a business is truly worth based on its ability to generate future cash.

For Dynatrace, the current free cash flow stands at $464 million. Analyst forecasts suggest steady growth over the coming years, with projected free cash flow reaching $1.10 billion by 2030. Estimates for the next five years are drawn directly from analyst models, and future projections are provided by Simply Wall St’s own extrapolations as the time frame extends.

Based on the DCF approach, the estimated fair value per share of Dynatrace is $71.07. With the current market price at $49.57, the implied DCF discount is 30.2 percent, suggesting that Dynatrace stock is significantly undervalued on this basis.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Dynatrace is undervalued by 30.2%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Dynatrace Price vs Earnings

For established, profitable companies like Dynatrace, the Price-to-Earnings (PE) ratio is a widely used metric to gauge valuation. It tells investors how much they are paying for each dollar of the company’s earnings, which is especially relevant when a business is consistently generating profits.

The “right” PE ratio for any stock depends on several factors. Companies with higher earnings growth potential or lower perceived risk typically justify higher PE ratios. Conversely, slower growing or riskier companies warrant lower PEs. Industry comparisons are a common starting point, but they do not always capture company-specific strengths or vulnerabilities.

At present, Dynatrace trades at a PE ratio of 30.3x. The average for its software industry peers stands significantly higher at 35.7x, and the peer group average sits at 70.4x. These benchmarks suggest Dynatrace is actually trading at a lower valuation multiple than much of the market and its closest competitors.

Simply Wall St’s “Fair Ratio” for Dynatrace is 27.8x. This proprietary metric goes beyond simple averages by analyzing Dynatrace’s unique combination of earnings growth projections, profit margins, market cap, risk profile, and industry position. By doing so, it provides a more tailored benchmark for what the multiple should be, instead of relying solely on broad comparisons.

Comparing the current PE ratio (30.3x) with the Fair Ratio (27.8x), Dynatrace is valued just above its fair level. The difference is minor, which suggests the market is pricing the company almost exactly as expected for its current fundamentals.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Dynatrace Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. Simply put, a Narrative is your story about a company—your point of view about what its future holds, and how that maps to numbers like fair value, earnings, revenue, and profit margins.

Narratives bridge the gap between the story you believe and the figures used in a financial forecast, and then connect that forecast to a fair value for the stock. This approach empowers you to make sense of complex data in a personal way, helping you decide when Dynatrace is a buy, a hold, or a sell, based on how its fair value compares to the current price.

Best of all, Narratives are designed to be simple and accessible. They are available for free on Simply Wall St’s Community page, where millions of investors around the world submit, discuss, and update their perspectives.

As news, earnings, or major updates come out, Narratives auto-refresh to reflect the latest information, so your investment thesis always stays relevant. For example, one investor’s Narrative for Dynatrace might envision robust AI-driven growth and a fair value of $70.00, while another might see risks outweighing opportunities and set their fair value closer to $55.00.

Do you think there's more to the story for Dynatrace? Create your own Narrative to let the Community know!

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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