Dynatrace Inc (DT, Financial) has registered a daily loss of -2.05% and a three-month loss of -8.32%, with an Earnings Per Share (EPS) (EPS) of 0.49. This raises the question: is the stock significantly undervalued? With a comprehensive valuation analysis, we aim to answer this question and provide valuable insights for potential investors.
Introduction to Dynatrace Inc (DT, Financial)
Dynatrace is a cloud-native company specializing in machine data analysis. The company offers its diverse product portfolio as a software as a service (SaaS), enabling clients to monitor and analyze their entire IT infrastructure in real time. This capability facilitates various applications across their businesses. Despite the recent downturn, Dynatrace's stock is trading at $46.43, significantly below its fair value (GF Value) of $68.85, indicating that the stock might be undervalued.
Understanding the GF Value of Dynatrace (DT, Financial)
The GF Value is a proprietary measure that estimates the intrinsic value of a stock. It takes into account historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates.
According to our valuation method, Dynatrace (DT, Financial) appears to be significantly undervalued. If the share price is significantly above the GF Value Line, the stock may be overvalued, leading to poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued, indicating higher future returns. Given Dynatrace's current price of $ 46.43 per share, the stock appears to be significantly undervalued.
With Dynatrace being significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength of Dynatrace (DT, Financial)
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage provide valuable insights into a company's financial health. Dynatrace has a cash-to-debt ratio of 8.91, ranking it better than 64.75% of 2755 companies in the Software industry. With an overall financial strength score of 9 out of 10, Dynatrace exhibits strong financial health.
Profitability and Growth of Dynatrace (DT, Financial)
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Dynatrace has been profitable 5 out of the past 10 years, with a revenue of $1.20 billion and an EPS of $0.49 over the past twelve months. Its operating margin of 8.84% ranks better than 68.2% of 2752 companies in the Software industry, indicating fair profitability.
Growth is a critical factor in a company's valuation. The 3-year average annual revenue growth rate of Dynatrace is 24.5%, ranking better than 80.19% of 2413 companies in the Software industry. However, its 3-year average EBITDA growth rate is 0%, ranking worse than all 2010 companies in the Software industry, indicating a need for improvement in growth.
ROIC vs WACC of Dynatrace (DT, Financial)
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) can also provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Dynatrace's ROIC is 5.76, and its WACC is 9.04.
Conclusion
In summary, Dynatrace (DT, Financial) appears to be significantly undervalued. The company's financial condition is strong, and its profitability is fair. However, its growth ranks worse than all 2010 companies in the Software industry. For more insights into Dynatrace stock, check out its 30-Year Financials here.
For high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
