Should Investors Reassess Datadog After the 14% Jump in June 2025?
October 10, 2025
If you’ve held Datadog stock for a while, you’re probably wondering if now is still the time to keep riding the wave, take some profits off the table, or even add more shares to your portfolio. It’s no secret that Datadog has steadily caught the market’s attention. The stock is up over 14% in the past month, and has soared 109.7% in three years. These aren’t just small moves; they suggest a company with real momentum, and the buzz hasn’t exactly gone unnoticed by investors hunting for poised tech winners. Datadog’s rise over the last year, gaining 22.3%, hints at a company that’s been embraced for its growth potential, especially as cloud infrastructure tools become essential across industries.
Of course, not every leap comes without a dose of risk. The past week’s 4.6% jump may owe as much to broader market optimism as it does to any Datadog-specific news, so it’s important to pause and ask: is the stock priced fairly, or have things gotten just a bit ahead of themselves? When we dig into the numbers, Datadog earns a valuation score of just 1 out of 6, suggesting there’s only one area where the stock currently looks undervalued.
Let’s break down what those different valuation checks actually mean for Datadog. And, don’t worry, before we’re done, I’ll share an even better way to get at the real value of this fast-moving company.
Datadog scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
A Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future cash flows, then discounting those back to today’s dollars. Simply put, it attempts to answer the question: what are all of Datadog’s expected future profits worth in total if we had them now?
For Datadog, the most recent trailing twelve months Free Cash Flow stood at $860.5 Million. Analysts project steady growth, with Free Cash Flow expected to reach approximately $2.57 Billion by 2029. It is important to note that cash flow estimates beyond the next five years are extrapolated based on trends, but analyst projections up to that point show a marked upward trajectory.
After calculating the numbers using a 2 Stage Free Cash Flow to Equity model, Datadog’s intrinsic value comes out to $174 per share. This is compared to its current market price, and the DCF analysis indicates the stock may be trading at an 8.8% discount.
That margin is notable, but it is tight enough to suggest the share price is roughly tracking Datadog’s fundamental value right now.
Result: ABOUT RIGHT
Simply Wall St performs a valuation analysis on every stock in the world every day (check out Datadog’s valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.
The Price-to-Sales (P/S) ratio is a widely used metric for valuing fast-growing tech companies like Datadog, especially when profits can be heavily reinvested or only just emerging. It is particularly useful for profitable companies where revenue growth still plays a central role in the business’s trajectory. The P/S ratio tells us how much investors are currently willing to pay for each dollar of the company’s sales.
A company’s growth rate and risk profile both shape what a “normal” P/S ratio should be. Higher expected growth or lower perceived risk can justify a higher ratio, while slower growth and more uncertainty typically mean it should trend lower. Comparing Datadog to its sector and closest peers, its current P/S stands at 18.4x. This is well above the Software industry average of 5.2x and also higher than the peer average of 10.6x.
This is where the concept of the “Fair Ratio” comes in. Simply Wall St’s Fair Ratio is a more nuanced benchmark, calculated by factoring in Datadog’s revenue growth prospects, profit margins, sector trends, company size, and potential risks. Unlike the simple averages provided by the industry or peers, the Fair Ratio aims to reflect what would be an appropriate P/S specifically for Datadog today. For Datadog, that number lands at 14.7x.
When we line up Datadog’s actual P/S ratio (18.4x) with the Fair Ratio of 14.7x, the stock appears to be priced a bit higher than what these underlying fundamentals suggest. This indicates the market has high expectations for future performance, but relative to its fundamentals, it is somewhat overvalued at these levels.
Result: OVERVALUED
PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.
Earlier we mentioned there’s an even better way to understand valuation. Let’s introduce you to Narratives. A Narrative is your investing story for Datadog; it’s how you connect the company’s prospects, risks, and business context with your own financial forecasts. Instead of focusing only on the numbers, a Narrative lets you state what you believe Datadog can achieve, set your assumptions for revenue, profit margins, or risks, and see how those assumptions turn into a personal fair value. Narratives link the company’s story to specific forecasts and a concrete estimate of value, making the investment decision more meaningful and practical than any single ratio or analyst target.
On Simply Wall St’s Community page, millions of investors are already using Narratives as an intuitive way to make investment decisions. Narratives compare an investor’s fair value to the current share price and update dynamically as soon as new earnings, news, or outlooks are published, helping you stay current with every data point. For example, one Datadog investor focused on AI expansion and margin gains might see a fair value above $200, while another cautious about competition and cloud cost pressures could estimate a fair value near $105. This highlights how Narratives empower users to invest with true conviction, based on their own outlook.
Do you think there’s more to the story for Datadog? Create your own Narrative to let the Community know!
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.
Companies discussed in this article include DDOG.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
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