Dynatrace Inc (NYSE:DT) Emerges as a Prime Example of 'Affordable Growth'

Investors looking for growth chances often face the task of balancing expansion possibility with fair prices. The "Affordable Growth" method handles this by finding companies showing solid growth paths while keeping good financial condition and earnings, all without asking for high price premiums. This method focuses on firms set to provide lasting expansion without the high multiples that usually come with high-growth stories, possibly offering improved risk-adjusted returns.

Dynatrace Inc (NYSE:DT) appears as a strong candidate through this screening process. The enterprise software company, which offers observability and security tools for cloud settings, shows the traits that make affordable growth stocks interesting: solid expansion numbers along with acceptable valuation measures.

Growth Path

Dynatrace displays notable growth traits that build the base of its investment case:

• Revenue growth of 18.70% over the past year, with a five-year average growth rate of 25.49%
• Earnings per share rising by 18.25% each year, keeping a five-year average growth of 35.19%
• Expected future EPS growth of 17.89% and revenue growth of 15.18% yearly

These growth numbers are much higher than industry averages and show the company's capacity to benefit from the growing market for cloud observability tools. The steady double-digit growth across several time frames points to lasting business speed rather than short-term performance jumps.

Valuation Review

Even with its solid growth picture, Dynatrace keeps acceptable valuation levels:

• P/E ratio of 32.62, which is lower than 63.21% of software industry peers
• Forward P/E of 25.84, less expensive than 68.57% of industry rivals
• Enterprise Value to EBITDA ratio placing it below 62.14% of software companies
• Price/Free Cash Flow ratio more appealing than 72.14% of industry peers

The valuation view gets especially interesting when thinking about the company's growth rates. The PEG ratio, which changes the P/E for growth outlooks, points to fair valuation compared to the company's expansion possibility. This mix of better-than-average growth with acceptable multiples forms the "affordable" part of the investment idea.

Earnings and Financial Condition

Beyond growth and valuation, Dynatrace shows excellent operational strength:

• Profit margin of 27.75%, doing better than 90% of software industry peers
• Return on assets of 12.08% and return on equity of 18.27%, both in the top group
• Gross margin of 81.39%, with the industry's top performers
• No debt, giving financial freedom and lowering risk

The company's earnings numbers show not only good absolute performance but also getting better trends, with both profit margins and operating margins growing in recent years. This operational quality backs the lasting nature of its growth story.

Investment Points

The mix of these factors makes Dynatrace a good example of the affordable growth idea. The company's solid market place in the growing cloud observability area, along with its financial control and acceptable valuation, forms a strong risk-reward picture. While the company does not pay dividends, this matches growth companies usually putting profits back into expansion chances.

For investors wanting to look into similar chances, other affordable growth choices can be found using our dedicated screening tool. This screen finds companies matching similar standards of solid growth, acceptable valuation, and good financial basics.

Disclaimer: This analysis is given for information only and should not be seen as investment guidance. Readers should do their own research and talk to a qualified financial advisor before making investment choices. Past performance does not ensure future results, and all investments have risk including possible loss of principal.