Will Wall Street's Enthusiasm About Datadog Lead To Big Gains?

• Datadog handily beat earnings and revenue views in its most recent quarter

• Wall Street expects strong earnings growth for the full year and for 2023

• Despite analyst optimism for the long term, enthusiasm was temporarily muted because the company only guided in line with expectations

Datadog has been the subject of analyst enthusiasm recently - at least for the most part.

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Credit Suisse began coverage with an "outperform" rating. Moffett Nathanson analyst Sterling Auty opened coverage with a "BUY" rating and a price target of $143 earlier in the week. Robert W. Baird gave a rating of "outperform" and a target price of $120 on the stock.

JP Morgan Chase was the only outlier in terms of analyst coverage.

The stock has fallen since it reported its second quarter. The company's earnings increased from the year-ago quarter. MarketBeat earnings data shows that that exceeded the consensus estimate.

The revenue came in at more than double the estimate. It was a year over year increase.

In the past five quarters, the company's earnings grew between 80% and 300%. In the last eight quarters, revenue grew at double-digit rates.

Datadog highlighted new partnerships in the earnings release. The number of customers with annual recurring revenue of $100,000 or more increased by 50% over the year earlier quarter.

Wall Street expects a profit of $0.80 per share for the full year, an increase of 70%. That will rise another 34% in the years to come.

The stock went into a slump with all the good news.

The majority of stocks are worried about interest rates, inflation, recession, and a broad market downdraft.

The company's guidance was only in line with expectations and dismayed investors.

Datadog gave guidance for the third quarter.

• Revenue between $410 million and $414 million.
• Non-GAAP operating income is between $51 million and $55 million.
• Non-GAAP net income per share between $0.15 and $0.17

The full year is expected.

• Revenue between $1.61 billion and $1.63 billion.
• Non-GAAP operating income is between $255 million and $275 million.
• Non-GAAP net income per share is between $0.74 and $0.81.

Net income has a chance of coming in at the lower end of expectations, which would greatly miss analyst views.

Wall Street still has faith in the stock, despite the fact that the consensus price target is higher than the stock's current price.

In the most recent quarter, institutional ownership soared, a sign that investors can take to the bank.

The majority of the shares are owned by institutions. Half of the shares are held by funds. In the past year, more institutions have bought shares than have sold them.

What is the significance of institutional ownership? Investment banks, funds, insurance companies, university endowments, and other large owners have dedicated research teams.

The institutions don't buy and sell willy-nilly. They accumulate positions when they have faith in a stock. They don't tend to bail out in a panic, although they do sometimes.

Datadog has a market cap of $28.30 billion, making it one of the top enterprise software makers. It trails a number of companies, includingshopify, ServiceNow, and Workday. Asana and Twilio are two well-known names with lower valuations.

As a fairly new company that’s in growth mode and one that institutions have confidence in, Datadog is a good watchlist candidate for the next market uptrend.