Shares of application performance monitoring software provider Dynatrace (NYSE:DT) fell 15% in the morning session after the company reported third-quarter results with billings falling below Wall Street's expectations. And while full-year revenue guidance came in higher than Wall Street's estimates, full-year ARR (annual recurring revenue) came in below expectations. Also, its gross margin fell. Zooming out, this was a mixed quarter, but with software stocks that are often expensive from a valuation perspective, small misses can lead to big disappointments.
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 Dynatrace? Access our full analysis report here, it's free.
What is the market telling us:
Dynatrace's shares are quite volatile and over the last year have had 3 moves greater than 5%. But moves this big are very rare even for Dynatrace and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 9 months ago, when the stock gained 9.8% on the news that the company reported fourth-quarter results that exceeded analysts' estimates for key topline metrics, including revenue, subscription revenue and annual recurring revenue (ARR). Profitability metrics also came in strong, with operating income and free cash flow surpassing estimates. In addition, earnings per share (EPS) beat by an impressive 17%.
Moving ahead, revenue guidance for the next quarter and full year were above Consensus. However, the EPS guidance for the next quarter and full year were roughly in line. Overall, it was a solid quarter, with the provided guidance indicating the company's ability to generate profits and cash flows in the near term.
Dynatrace is up 6.5% since the beginning of the year, and at $56.19 per share it is trading close to its 52-week high of $60.70 from February 2024. Investors who bought $1,000 worth of Dynatrace's shares at the IPO in July 2019 would now be looking at an investment worth $2,358.
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