Today we're going to take a look at the well-established Dynatrace, Inc. (NYSE:DT). The company's stock received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$60.70 at one point, and dropping to the lows of US$45.01. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Dynatrace's current trading price of US$47.09 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let's take a look at Dynatrace's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Dynatrace Still Cheap?
According to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. In this instance, we've used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock's cash flows. We find that Dynatrace's ratio of 70.76x is above its peer average of 43.28x, which suggests the stock is trading at a higher price compared to the Software industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Dynatrace'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.
Can we expect growth from Dynatrace?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let's also take a look at the company's future expectations. Dynatrace's earnings over the next few years are expected to increase by 66%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? DT's optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe DT should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio 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 an eye on DT for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for DT, which means it's worth diving deeper into other factors in order to take advantage of the next price drop.
If you'd like to know more about Dynatrace as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Dynatrace, and understanding them should be part of your investment process.
If you are no longer interested in Dynatrace, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.