Software Stock Slipping Despite Q3 Beat

To follow, no fewer than four analysts adjusted their price targets

Assistant Editor
Nov 11, 2020 at 11:43 AM
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The shares of software stock Datadog Inc (NASDAQ:DDOG) are down 12.5% at $81.16 at last check, despite reporting a third-quarter earnings and revenue beat after last night's close. No fewer than four analysts have chimed in so far, with Mizuho and Barclays both cutting their price targets to $115, and Needham and Morgan Stanley raising theirs to $109 and $86, respectively. J.P. Morgan Securities also downgraded DDOG from "overweight" to "neutral," citing the company's second-straight quarter of deceleration, a concern since Datadog stock is trading north of 40 times its revenue. 

Today's drop has DDOG gapping below support at the 120-day moving average, a trendline that captured an early November pullback, for the first time in over six months. On track for its fourth-straight daily loss, the equity is still up around 115% year-to-date. 

The brokerage bunch was split on Datadog stock, coming into today, with half of the 14 analysts in coverage at a "strong buy" rating, and half at a "hold." Meanwhile, the 12-month consensus price target of $100.87 is a 24.5% premium to current levels. 

Despite calls outnumbering puts on an absolute basis, the stock's 10-day put/call volume ratio of 0.69 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is in the elevated 83rd percentile of its annual range. In other words, puts have been picked up at a faster-than-usual rate in the past couple of weeks. 

Today, options volume is taking off, with 43,000 calls and 46,000 puts across the tape already -- nine times what's typically seen at this point. Most popular is the November 70 put, where new positions are being sold to open. This means plenty of options traders are betting on the $70 level acting as a floor for the security until these contracts expire next Friday, Nov. 20. 

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