While a sharp rise in share price is pleasing for investors, it can become a challenge when a company fails to perform sufficiently to justify the higher levels. That seemed to be the dynamic with software-as-a-service (SaaS) platform developer Datadog (DDOG 0.40%). The company's latest quarterly earnings report was impressive in many ways, but apparently it wasn't good enough for many investors, as they traded the stock down.
Some believe this makes the company an irresistible bargain. One market pro likely in that camp is Cantor Fitzgerald analyst Yi Fu Lee, who stuck to his guns and reiterated his buy recommendation despite the gloomy investor sentiment.
The quizzically disappointing quarter
There was much to like in Datadog's first-quarter figures. The specialty tech company managed to lift its revenue by 27% year over year to $611 million. Better, non-GAAP (adjusted) net income almost doubled, to over $157 million. Both headline numbers well exceeded the average analyst estimates.
Perhaps the source of investor discontent was guidance. Although Datadog management is forecasting continued growth on both the top and bottom lines for the current quarter and full year, only the latter range topped the consensus pundit forecasts. And it doesn't beat them by much.
In his note detailing the reasons for his buy recommendation and $150 per-share price target, Lee opined that the sell-off was a knee-jerk reaction that wouldn't last. "While we are certainly disappointed on the short term price pressure at Datadog, we advise investors to take full advantage of today's volatility to add or create a new position at this level," he wrote.
The weakness probably won't last
Datadog management has proven that it has the chops to compete in a tough industry, and keep the growth train running. Even in the high-wire tech industry, such companies are exceptional, and like Lee, I don't expect this slump to last. Investors are sure to jump back into Datadog sooner rather than later. I think we can expect a new rally in the stock.
