What happened
Shares of Datadog (DDOG 1.19%) rallied on Thursday, surging as much as 6.5%. As of 3:20 p.m. ET, the stock was still up 6.1%.
While the rebounding market no doubt played a part in its ascent, the real reason Datadog gained ground was bullish commentary by a Wall Street analyst.
So what
Cantor Fitzgerald analyst Jonathan Ruykhaver initiated coverage of Datadog stock with an overweight (buy) rating. At the same time, the analyst assigned a price target of $95, which suggests potential gains for investors of 34%, compared to Wednesday's closing price.
Ruykhaver posited that Datadog's best-in-breed cloud-native observability platform is best positioned to provide monitoring across infrastructure, application performance, digital experience, and log management functions. Its software-as-a-service (SaaS) system was already a cut above, but the recent addition of cybersecurity and developer tools "rounds out" the platform.
He's not the only one singing Datadog's praises. Earlier this month, Datadog rode a tide of optimism, including that of Oppenheimer analyst Ittai Kidron, who called Datadog a "top pick for 2023." At the same time, the analyst reiterated the stock's outperform (buy) rating, while assigning a $105 price target, suggesting 48% upside.
The analyst believes the company will be relatively resilient to macroeconomic headwinds, due to its "mission-critical" nature. Furthermore, his bullish thesis got a lift from Datadog's recent foray into cybersecurity, which will significantly expand the company's total addressable market.
Now what
Datadog's ability to monitor essential systems and alert developers of issues before they result in expensive downtime is an attractive value proposition. Like other tech stocks, however, it's been hammered by the bear market, sending its stock down 62% from its late-2021 peaks.
The stock is currently trading for roughly 8 times next years' sales, which is a pretty reasonable price-to-sales ratio, especially when you consider its revenue growth is expected to top out at about 60% this year. Growth of that magnitude is deserving of a premium. It also makes the stock a buy.
