Datadog Inc (DDOG)

Conclusion

Datadog provides an observability and security platform for cloud applications, with customers in the United States and internationally. On 9 November 2026 the share price was 179.62 USD, giving a market capitalisation of 60.6 billion USD.

The verdict is overvalued. The fair value band runs from 113.25 to 169.87 USD with a midpoint of 141.56 USD, a margin of safety of -21.2% at the current price. Today's EV to EBITDA of 149.4 is far below its ten-year median of 797.8, and price to free cash flow of 51.7 is below its median of 71.7, yet these multiples still do not show a bargain on the cash flows. The DCF gives 23.45 USD per share. The reverse DCF implies growth of 45.9% a year, against revenue growth of 41.5% a year over five years and free cash flow per share growth of 58.3% a year.

The strongest numbers are the net cash position (net debt to EBITDA of -10.35), ROIC of 32.7% against a WACC of 12.2%, and five-year revenue growth of 41.5% a year. The weakest are an operating margin of 2.2%, stock-based compensation at 20.1% of revenue, and a free cash flow yield of 1.93%. If growth slows, the price and the implied growth would be hard to justify.

Financial health

Financial strength is green, held up by a net cash position (net debt to EBITDA of -10.35), interest coverage of 19.4 and a current ratio of 3.51, all as of 30 September 2026. Debt to equity is 0.28 and the quick ratio is 3.39. The Altman Z-score is 13.06, in the safe zone, but the Altman model was designed for manufacturers and Datadog is a software company, so the reading is indicative only. Insolvency risk: low, about 0.16% by the estimate of the Ohlson model over one to two years, based on figures as of 31 December 2025.

Earnings quality

Earnings quality is yellow. Free cash flow conversion of 4.47 on a trailing basis and 11.42 over five years, together with eight beats in eight quarters, hold it up. Stock-based compensation at 20.1% of revenue and a five-year share count growth of 3.9% a year pull it down. Free cash flow after stock-based compensation is 311.12 million USD on a trailing basis. The accrual ratio is -0.15 and the Piotroski score is 6 of 9. The Beneish M-score is not available. Average earnings surprise over eight quarters is 29.97%. Current-year estimates rose 6.8% over 90 days, next-year estimates rose 3.6%, and next-year EPS growth is expected at 14.2%.

Profitability

Profitability is yellow. ROIC of 32.7% against a WACC of 12.2% creates value, with an ROIC minus WACC value of 20.5%. ROIC's five-year median is 14.8%. Operating margin is 2.2% against a ten-year median of -2.3%, net margin is 6.1% against -2.6%, and gross margin is 79.6% against 78.4%. The operating margin is still assessed as bad in absolute terms, and operating margin stability is 0.874. Return on equity is only 5.6%. The 2025 DuPont split shows a net margin of 3.14%, asset turnover of 0.52 and an equity multiplier of 1.78, so leverage is not inflating the return. Low profit per unit of sales is what holds it down.

Growth

Growth is green. Revenue compound growth is 27.0% over three years and 41.5% over five years, and revenue rose in 8 of 8 comparable years. Free cash flow per share compounds at 34.9% over three years and 58.3% over five years. Compound EPS growth is not available. The next-year EPS growth estimate of 14.2% is well below the five-year revenue pace, which suggests analysts expect a considerable slowdown from recent rates.

Valuation

Valuation is red. The verdict is overvalued, with a fair value band of 113.25 to 169.87 USD, a midpoint of 141.56 USD and a margin of safety of -21.2% at 179.62 USD. Today's multiples against their ten-year medians: EV to EBITDA of 149.4 against 797.8 (premium of -81.3%), price to free cash flow of 51.7 against 71.7 (premium of -27.9%), price to sales of 14.2 against 21.3 (premium of -33.6%), and price to book of 12.8 against 17.1 (premium of -25.1%). Price to earnings is 231.2, with no median available. The DCF gives 23.45 USD per share at a discount rate of 12.42%, with 49.1% of value in the terminal value. The fair value from historical multiples is 259.68 USD. The reverse DCF implies 45.9% growth, against 41.5% delivered in revenue. The fair value is built on fixed assumptions, not a price target. The free cash flow yield is 1.93% and there is no dividend.

Risks

Operating margin of 2.2% leaves little room if revenue growth slows, since costs would weigh heavily on profit. Stock-based compensation at 20.1% of revenue cuts free cash flow after compensation to 311.12 million USD, and share count growth of 3.9% a year dilutes shareholders. The free cash flow yield of 1.93% means the price depends on sustained growth, and the valuation is red. Not available: the Beneish M-score, EPS compound growth and the ten-year growth figures. This analysis has no debt maturity schedule and no revenue by segment, and the DCF rests on fixed assumptions.