Is Datadog, Inc. (DDOG) Going to Burn These Hedge Funds?

·6 min read

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Datadog, Inc. (NASDAQ:DDOG).

Is Datadog, Inc. (NASDAQ:DDOG) worth your attention right now? Money managers were in a pessimistic mood. The number of long hedge fund positions went down by 8 recently. Datadog, Inc. (NASDAQ:DDOG) was in 44 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 57. Our calculations also showed that DDOG isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Today there are a lot of methods stock traders put to use to value publicly traded companies. A couple of the best methods are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the best investment managers can trounce the market by a solid amount (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let's go over the key hedge fund action encompassing Datadog, Inc. (NASDAQ:DDOG).

Do Hedge Funds Think DDOG Is A Good Stock To Buy Now?

At the end of March, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. On the other hand, there were a total of 44 hedge funds with a bullish position in DDOG a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DDOG A Good Stock To Buy?
Is DDOG A Good Stock To Buy?

Among these funds, Lone Pine Capital held the most valuable stake in Datadog, Inc. (NASDAQ:DDOG), which was worth $545.2 million at the end of the fourth quarter. On the second spot was D1 Capital Partners which amassed $446.5 million worth of shares. Tiger Global Management LLC, Whale Rock Capital Management, and Ashe Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Stepstone Group allocated the biggest weight to Datadog, Inc. (NASDAQ:DDOG), around 77.95% of its 13F portfolio. Ashe Capital is also relatively very bullish on the stock, setting aside 7.42 percent of its 13F equity portfolio to DDOG.

Judging by the fact that Datadog, Inc. (NASDAQ:DDOG) has faced a decline in interest from hedge fund managers, it's safe to say that there was a specific group of money managers who sold off their entire stakes by the end of the first quarter. Intriguingly, Gabriel Plotkin's Melvin Capital Management sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, comprising about $93.5 million in stock, and Brandon Haley's Holocene Advisors was right behind this move, as the fund dropped about $55.6 million worth. These moves are interesting, as aggregate hedge fund interest fell by 8 funds by the end of the first quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Datadog, Inc. (NASDAQ:DDOG) but similarly valued. We will take a look at Credit Suisse Group AG (NYSE:CS), TELUS Corporation (NYSE:TU), Etsy Inc (NASDAQ:ETSY), Garmin Ltd. (NASDAQ:GRMN), Sirius XM Holdings Inc (NASDAQ:SIRI), Seagen Inc. (NASDAQ:SGEN), and Telefonica S.A. (NYSE:TEF). All of these stocks' market caps match DDOG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CS,13,35775,2 TU,18,200045,4 ETSY,53,1645009,-3 GRMN,23,513329,-4 SIRI,24,570460,-8 SGEN,39,7467410,7 TEF,6,4834,1 Average,25.1,1490980,-0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.1 hedge funds with bullish positions and the average amount invested in these stocks was $1491 million. That figure was $2384 million in DDOG's case. Etsy Inc (NASDAQ:ETSY) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 6 bullish hedge fund positions. Datadog, Inc. (NASDAQ:DDOG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DDOG is 60.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. Hedge funds were also right about betting on DDOG as the stock returned 23.9% since the end of Q1 (through 6/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.

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