Key Points
- Market optimism over Dynatrace's network observability and monitoring services, driven by AI technologies, spurred strong recent price action.
- Following its Q4 earnings report, Dynatrace broke out of a cup-shaped consolidation on May 18.
- The company reported EPS of $0.31 on May 17, an 82% increase from the year-earlier quarter, with revenue growing by 25% to $314.5 million.
- Dynatrace consistently beat top and bottom-line views in the past three quarters.
- 5 stocks we like better than Dynatrace
Dynatrace Inc. NYSE: DT has been a strong performer recently, benefiting from the market's optimism about the company’s AI technologies, as well as its network monitoring services.
A glimpse of the Dynatrace chart chart shows a stock clawing its way out of a steep decline that began in October 2021. Recent price action has been strong, with the following gains:
- 1 month: 27.35%
- 3 months: 24.81%
- Year-to-date: 37.39%
Following the company's fiscal fourth-quarter earnings report, the stock broke out of a cup-shaped consolidation on May 18.
On May 17, Dynatrace reported net income of $0.31 a share, up 82% from the year-earlier quarter. Revenue grew by 25% to $314.5 million.
Beating Analysts' Views
Dynatrace earnings data show the company beat top and bottom-line views in each of the past three quarters.
It also trounced its own estimates in the most recent quarter.
The company increased its revenue guidance for the current quarter and the full year.
Massachusetts-based Dynatrace makes “observability” software, which allows businesses to monitor the performance of applications, networks, and infrastructure in real time.
Resolving Customers' Problems Quickly
With this advanced data analysis, Dynatrace can identify any issues or bottlenecks that may affect the performance of its clients’ digital services. This helps businesses detect and resolve problems quickly, ensuring smooth operations and positive user experiences. Dynatrace also offers insights and recommendations to improve system performance.
Dynatrace went public in 2019, and has been profitable since even before making its NYSE debut. That’s somewhat unusual in the tech space, where venture-funded companies can take years to generate revenue before eventually turning a profit.
The company has posted double-digit revenue and profit growth since the quarter ended in September 2021. That’s also somewhat unusual, as many techs saw revenue decline last year. As inflation ratcheted up, there was widespread speculation that enterprise clients would tighten their belts, and spend less on cloud-computing security and analytics services.
From Optional To Mandatory
However, that hasn’t occurred, at least not to the extent that some pundits predicted. In the most recent quarterly report, Dynatrace CEO Rick McConnell said, in a statement, “Observability is quickly moving from optional to mandatory as customers look to tame the explosion of data and increased complexity that's driven by their cloud migration and digital transformation initiatives.”
In its own filings, Dynatrace says direct and indirect competitors include Cisco Systems Inc. NASDAQ: CSCO, Datadog Inc. NASDAQ: DDOG, Splunk Inc. NASDAQ: SPLK, Palo Alto Networks Inc. NASDAQ: PANW, Akamai Techologies Inc. NASDAQ: AKAM, and several privately held companies.
The company’s proprietary AI engine, dubbed Davis, is continually learning to provide precise answers when a customer’s system performance deviates from expected or desired conditions.
According to Dynatrace, Davis differs from machine learning-based engines that rely on historical data, in that these rival products “can overwhelm IT professionals with alerts.”
From Reactive To Proactive
The company’s filings read, “We believe the accuracy and precision of the answers delivered by Davis enable our customers to shift from reactive to proactive remediation, providing a substantial advantage in time savings, resource efficiency, customer satisfaction, and business outcomes.”
Dynatrace analyst ratings show a consensus of “moderate buy,” but investors should use some caution. The stock is currently extended 10% beyond its buy point above $48. It closed 18.6% above its 50-day moving average on June 5 after fast rallies recently.
Boosting Price Targets
After its earnings report, nine analysts either boosted their price target or upgraded their rating on the stock. Investment bank William Blair initiated coverage with a rating of “outperform.”
Institutional owners are clearly buying the story, as is evident by the recent big price moves. MarketBeat’s institutional ownership data for Dynatrace shows that 306 institutional buyers accounted for $2.03 billion in inflows in the past 12 months versus 194 institutional sellers who unloaded $1.02 billion worth of shares.
As a fairly new public company and one that is still in fast growth mode, Dynatrace does not, as of yet, pay a dividend and has said it has no intention of doing so in the foreseeable future. The attraction to this stock is growth potential, not income.
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