DYNATRACE INC (NYSE:DT) – A Top Pick for Affordable Growth Investors

Investors looking for growth opportunities at fair prices often consider the "Affordable Growth" strategy, which focuses on companies with strong growth potential and reasonable valuations. This method selects stocks with a growth score above 7, solid profitability, financial stability, and a valuation score above 5, ensuring the company's price aligns with its fundamentals. One stock that meets these standards is DYNATRACE INC (NYSE:DT), a provider of software intelligence platforms for enterprise cloud solutions.

Growth at a Fair Price

DYNATRACE INC is a strong choice for affordable growth investors because of its growth metrics, fair valuation, and high profitability. Here’s how the company meets the strategy’s key requirements:

Solid Growth Potential

The company’s Growth Rating of 8 highlights its historical and expected growth:

• Revenue Growth: Revenue rose by 18.75% over the past year, with a five-year average annual growth of 25.49%.
• Earnings Per Share (EPS) Growth: EPS increased by 18.25% last year, with a five-year CAGR of 35.19%.
• Future Projections: Analysts forecast annual EPS growth of 17.51% and revenue growth of 15.25%, signaling ongoing strength.

While future growth may slow slightly compared to past performance, the company remains well-placed in the growing cloud observability and security market.

Fair Valuation

Despite its growth, DYNATRACE is not overpriced, earning a Valuation Rating of 5:

• Price/Earnings (P/E) Ratio: At 30.90, DT trades slightly above the S&P 500 average (26.41) but is cheaper than 65% of software industry peers.
• Forward P/E: The forward P/E of 24.88 is below the S&P 500 average (33.87) and more appealing than 69% of competitors.
• Enterprise Value/EBITDA: This ratio shows DT is more affordable than 61% of sector peers.

While the PEG ratio suggests a slight premium, the company’s profitability and financial health support its valuation.

Profitability and Financial Stability

DYNATRACE performs well in profitability (Rating of 8) and maintains strong financial health (Rating of 7):

• Profit Margins: Gross margin is 81.15% (top 16% of industry), and net profit margin is 28.47% (top 9%).
• Return Metrics: Return on Assets (ROA) of 11.68% and Return on Equity (ROE) of 18.45% exceed most peers.
• Balance Sheet: The company has no debt and an Altman-Z score of 6.32, indicating low bankruptcy risk.

Why These Metrics Matter for Affordable Growth

The Affordable Growth strategy seeks companies that combine growth with fair valuations, avoiding overpriced stocks while targeting those with sustainable potential. DYNATRACE fits this profile by offering:

• Growth: Steady revenue and earnings growth, supported by trends in cloud computing and AI analytics.
• Valuation: A fair price relative to earnings and growth, reducing exposure to speculation.
• Fundamentals: High profitability and a strong balance sheet lower risk, making it a stable choice in uncertain markets.

For more details on DYNATRACE’s fundamentals, see the full fundamental analysis report here.

Discover More Affordable Growth Stocks

DYNATRACE is one example of a stock that fits this strategy. Investors can find other candidates using the Affordable Growth Stock Screener, which filters for companies with strong growth, fair valuations, and solid financials.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research or consult a financial advisor before making decisions.