Datadog, Inc. (DDOG): Were Hedge Funds Right About This Stock?

In this article you are going to find out whether hedge funds think Datadog, Inc. (NASDAQ:DDOG) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Datadog, Inc. (NASDAQ:DDOG) was in 56 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 57. DDOG has seen an increase in hedge fund interest lately. There were 44 hedge funds in our database with DDOG positions at the end of the first quarter. Our calculations also showed that DDOG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 June, a total of 56 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from one quarter earlier. On the other hand, there were a total of 57 hedge funds with a bullish position in DDOG a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Lone Pine Capital was the largest shareholder of Datadog, Inc. (NASDAQ:DDOG), with a stake worth $606.9 million reported as of the end of June. Trailing Lone Pine Capital was Tiger Global Management LLC, which amassed a stake valued at $519.6 million. D1 Capital Partners, Whale Rock Capital Management, and Steadfast Capital Management 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 88.78% of its 13F portfolio. Ashe Capital is also relatively very bullish on the stock, dishing out 8.7 percent of its 13F equity portfolio to DDOG.

Now, key hedge funds were leading the bulls’ herd. Steadfast Capital Management, managed by Robert Pitts, initiated the biggest position in Datadog, Inc. (NASDAQ:DDOG). Steadfast Capital Management had $142.8 million invested in the company at the end of the quarter. Gabriel Plotkin’s Melvin Capital Management also made a $130.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Glen Kacher’s Light Street Capital, Ben Jacobs’s Anomaly Capital Management, and Suraj Parkash Chopra’s Force Hill Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Datadog, Inc. (NASDAQ:DDOG) but similarly valued. These stocks are NatWest Group plc (NYSE:NWG), Valero Energy Corporation (NYSE:VLO), Liberty Broadband Corp (NASDAQ:LBRDA), BeiGene, Ltd. (NASDAQ:BGNE), Skyworks Solutions Inc (NASDAQ:SWKS), Li Auto Inc. (NASDAQ:LI), and Chunghwa Telecom Co., Ltd (NYSE:CHT). This group of stocks’ market values match DDOG’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $1273 million. That figure was $3235 million in DDOG’s case. Valero Energy Corporation (NYSE:VLO) is the most popular stock in this table. On the other hand NatWest Group plc (NYSE:NWG) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Datadog, Inc. (NASDAQ:DDOG) is more popular among hedge funds. Our overall hedge fund sentiment score for DDOG is 89.5. 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 returned 26.3% in 2021 through October 29th but still managed to beat the market by 2.3 percentage points. Hedge funds were also right about betting on DDOG as the stock returned 60.5% since the end of June (through 10/29) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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