In this article, we’ll use TipRanks’ Comparison Tool to look at two stocks, Palantir (NYSE:PLTR) and Datadog (NASDAQ:DDOG), that are capable of big gains in 2023.
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The tech sell-off is showing few signs of letting up as we head into the holiday season. With so many unprofitable disruptive tech stocks struggling to hang onto any relief bounces, there’s a reasonable chance that the tech-focused pain could spread into 2023.
Palantir and Datadog are just two data plays that have been in free-fall for well over a year now. Shares of PLTR and DDOG are now down 65% and 80%, respectively, from their all-time highs.
With interest rates rising in the face of an economic downturn, a growing number of investors are turning away from tech stocks lacking in profits. In a near-zero rate environment, unprofitable growth stocks are more valued. In a 4-5% rate world, such stocks are worth some amount less. With sell-offs in innovative tech ranging from 30% to 90%, it’s tough for dip-buyers to draw a line in the sand after such a vicious and ongoing descent.
Undoubtedly, many innovators may not be able to compete in a world without easy money. Plans to improve margins could be key to the bottoming-out process for stocks that can’t seem to catch any sort of break.
Palantir and Datadog are two very different big-data plays that seem to sink lower by the week. One has to think the rate-induced valuation reset in the names has already (mostly) been considered. Going into recession, we’ll see how much growth stands to erode as corporations look to trim away their IT budgets.
Palantir
Palantir is a former meme stock that’s crashed back to Earth. The big-data analytics software developer does a lot of work for the U.S. government. That said, the company has been pushing into the commercial space to beef-up margins while increasing its total addressable market (TAM).
Undoubtedly, government work is less likely to take a big hit in the face of a Fed-induced economic downturn. As the company shifts gears and walks into new growth horizons, there’s a good chance PLTR stock will be able to get back on its feet again after this horrific sell-off concludes.
Indeed, the meme-stock glory days are over with, leaving all-time highs out of sight over the next decade. Still, at $7 and change per share, there’s a lot of runway if Palantir can make marginal improvements in a recession year.
The bar is very low at this juncture, with many analysts slapping the stock with a “Sell” recommendation. Even with Palantir’s five-year $443 million CDC contract in the books, the future is hazy for the secretive company. At 7.6 times sales, PLTR stock seems more like a stock to buy on the way up than the way down. It’s a name that’s punished dip-buyers and meme-stock investors.
What is the Price Target for PLTR Stock?
Wall Street has a Hold consensus rating based on two Buys, four Holds, and four Sells assigned in the past three months. The average PLTR stock price target of $9.13 implies a 27.87% gain. In short, Palantir’s a high-risk, high-reward name with little visibility.
Datadog
Datadog is a monitoring and analytics software company in a vicious bear market showing no signs of letting up. The company suffered a massive fall from grace. Even after a decent third quarter (EPS of $0.23 vs. $0.16 consensus), DDOG stock cannot catch any relief. The negative momentum is too strong.
Datadog has made progress on the margin front, with adjusted operating margins rising 100 bps to 17% in the latest quarter. Like Palantir, Datadog needs to keep growth going strong while improving its profitability prospects if it’s to see its stock bottom out.
Datadog specializes in serving small and medium-sized businesses (SMBs), which tend to feel the most pressure from higher rates and macro headwinds. Longer term, I think Datadog will take advantage of its high growth ceiling as it looks to cater to and win over larger-cap clientele.
For now, Datadog remains an incredibly expensive stock. Sure, Datadog’s on the right track, but its hefty valuation of 14.1 times sales is working against it in this environment. DDOG stock is definitely worth a premium price tag, but it remains to be seen where the valuation reset ends.
What is the Price Target for DDOG Stock?
Wall Street has a “Strong Buy” consensus rating on Datadog based on 20 Buys and six Holds. The average DDOG stock price target of $110.26 implies an over 45% gain from here.
Conclusion: Analysts Expect More from DDOG Stock
Big data is down and out, and dip-buyers must be cautious as they opt to catch a falling knife. Between PLTR and DDOG, Wall Street overwhelmingly favors Datadog.
