Stock Story -
What Happened: Shares of cloud monitoring software company Datadog (NASDAQ:DDOG (NASDAQ:DDOG)) fell 6.1% in the morning session after major indices declined (Nasdaq down 2.3%, while the S&P 500 index fell 1.9%) on fresh concerns about the strength of the economy after the Bureau of Labour Statistics reported non-farm payrolls for July 2024, which revealed that the U.S. economy added 114 000 jobs (versus expectations for +179,000 jobs). In addition, the data revealed that the unemployment rate rose to 4.3%, the highest since October 2021.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Datadog? Find out by reading the original article on StockStory, it's free.
What is the market telling us: Datadog's shares are very volatile and over the last year have had 11 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 16 days ago, when the stock dropped 7.8% on the news that Reuters reported that the company was named one of the potential acquirers of Gitlab.
According to the report, Gitlab is working with investment bankers on a potential sale after attracting acquisition interests. It is worth highlighting that Alphabet (NASDAQ:GOOGL) (Google) has a 22.2% voting stake in GitLab and is also considered a potential buyer.
The share price of acquirers tends to fall because of the potential for overpayment, integration risks, and potential dilution of existing shareholders or higher debt/interest if the company needs to raise equity/debt capital to fund the deal. In general, the market doesn't like uncertainty, and large M&A introduces uncertainty.
Datadog is down 5.1% since the beginning of the year, and at $109.26 per share it is trading 19.8% below its 52-week high of $136.15 from February 2024. Investors who bought $1,000 worth of Datadog's shares at the IPO in September 2019 would now be looking at an investment worth $2,907.
