I have been invested in DDOG for awhile. I like the company quite a bit. I have a spreadsheet that maps growth and valuation metrics for STNE,TTD,ZM,AYX,DDOG,ZS,GH,DOCU,OKTA,COUP,CRWD,ROKU,TEAM,MDB,LVGO, and FSLY.
I then tend to map companies into different growth cohorts and then I compare the valuations of the company within that cohort to look for the best deals.
The top growth cohort is comprised of companies on my watch list that are growing at 75% or higher rates. Here are the companies and their y/o/y growth rate reported from their most recently reported quarter:
Guardant Health 94%
Livongo 115% (haven’t updated from today’s report)
Then I look at valuation metrics. One that I look at is P/S based upon fiscal year guidance.
Guardant Health 28.6 (they withdrew guidance but I am still using their original guidance)
Another is P/S if you annualized (x4) their most recent reported quarter sales.
Guardant Health 29.6
I have several other valuation approaches (trailing, 6-month, mixing several approaches), but they all tell the same story. Which is, Datadog is a valuation outlier.
Zoom is delivering massive, massive growth. Their most recent reported quarter even understated their growth due to the huge Covid-19 tailwind. I’m comfortable with zoom being a high flier. Livongo has shown accelerating triple-digit growth, not as good as Zoom (none are), but they are also a lower market cap company. Also they were just taken out via acquisition so maybe they don’t matter much anymore.
That leaves Crowdstrike – 30x forward sales doesn’t feel totally crazy to me for a company growing at a 80% rate and high margin (plus they will beat their guidance). Guardant has a smaller base and is more covid impacted, but its forward valuation is close to CRWD…not totally crazy to me.
But that leaves Datadog. Datadog’s validation just seems high to me. Why would it deserve a higher forward valuation than zoom? Zoom is going to grow certainly 2x Datadog and maybe 3x Datadog in the next quarter.
I would appreciate any thoughts on this subject. I have been thinking to add to Datadog but I’ve been reluctant based upon this valuation analysis.