Software developer Dynatrace is Wednesday's pick for IBD 50 Growth Stocks To Watch. DT stock is in the 5% buy zone of a cup-with-handle base and is nearing a high.
Dynatrace's customizable enterprise cloud platform integrates security, analytics and automation, using three types of artificial intelligence. Its platform is based on a subscription-as-a-service, or SaaS, model.
Its Davis AI is based on predictive, causal and generative AI models. These modules allow for forecasting. machine learning, anomaly detection, automated recommendations and natural language creation.
On Nov. 28, Dynatrace announced it achieved Security Competency from Amazon.com's Amazon Web Services unit, known as AWS. The acknowledgment denotes Dynatrace's expertise in preventing threats to customers across their AWS environments.
DT Stock Climbs To A Buy Zone
DT stock is solidly in the buy zone of a cup-with-handle base — although the handle is rather small and shallow, and not ideal. The zone reaches to 55.23 from a 52.60 buy point on the daily chart, according to MarketSmith pattern recognition. DT stock gained around 43% this year and is nearing its 52-week high of 55.87, reached on July 12.
The stock jumped 2.7% on Nov. 2 in heavy volume, following the company's mixed earnings report for its fiscal second quarter, which ended in September. Shares lifted 4.6% the next day amid a rally in software stocks sparked by falling Treasury yields. The AI stock reclaimed its 50-day moving average on Nov. 3, then continued a steep ascent.
Dynatrace pulled back on Nov. 15, in heavy trading, after private equity firm stockholder Thoma Bravo announced it was selling 10 million shares of DT stock. Shares recovered, then gapped up 2.3% and broke out of the base, hitting the 52.60 buy point on Nov. 29.
Dynatrace Lifts Guidance
In its second-quarter earnings report, Dynatrace topped profit estimates but fell short on sales expectations. Earnings increased 41%, trailing 50% and 82% increases in the prior two quarters. Its 26% sales growth was in line with the 23%-29% range from the last seven quarters.
The company raised its fiscal third-quarter and full-year 2024 earnings and sales projections in the Nov. 2 report. It predicted revenue of $356 million to $359 million for Q3.
"Our unified platform, AI leadership, and automation differentiate us from our competitors and position us well for continued growth and success," Chief Executive Rick McConnell said in the earnings release. "Given the strength of these results, and our visibility into the second half of the year, we are raising fiscal 2024 guidance across the board."
Analysts expect 14% earnings growth for the current fiscal 2024, which ends in March, and have revised estimates for 2025 upward to 13%, according to IBD's MarketSmith.
Mutual funds own 67% of shares with 1,342 owning the AI stock in September, up from 1,312 in June and 1,208 in March. Its 1.8 IBD Up/Down Volume Ratio shows higher volume on up days in the last 50 days.
In addition, DT stock holds an IBD Accumulation/Distribution Rating of B+, indicating institutions have done fairly heavy buying over the last 13 weeks. Lastly, Dynatrace boasts a score of 98 on both its IBD Composite and EPS ratings.
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