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Why Citron’s DigitalOcean Verdict Is Justified By TipRanks


© Reuters. Why Citron’s DigitalOcean Verdict Is Justified

DigitalOcean Holdings (DOCN) operates a cloud computing platform that provides developers with the necessary tools at an affordable rate.

It is often referred to as Shopify (NYSE:), for cloud developers. This stock has my full support. (See DOCN stock charts on TipRanks)

Citron’s Prediction

Andrew Left’s Citron Research recently placed a $200 price target on DigitalOcean stock, citing Shopify’s journey to the thousands club as one having similar parallels.

Earnings & Growth

Since Citron’s report was released, DigitalOcean managed to beat earnings, posting revenue of $103.8 million and a loss per share of $0.02 (beating estimates by three cents) in its second quarter.

Highlights from the company’s second quarter include a run rate increase of 36% year-over-year, net dollar retention rate year-over-year growth of 113%, and a quarter-over-quarter average spend per customer increase of 25%.

DigitalOcean announced its acquisition of Nimbella a month after it released its earnings. Nimbella, a serverless cloud platform which helps companies develop and implement a cloud strategy, is available for purchase.

The financial terms of the deal were not disclosed but it is expected that Nimbella would increase top-line growth. Analysts expect DigitalOcean’s revenue to grow an additional 105.9% by December 2022.

Putting It Together

It’s one thing to look at activist investors’ opinions, and earnings growth, but it’s another to know whether the stock is fairly priced.

Although the weighted cost per share is 7.3%, it has seen its free cashflow yield increase by 69% over July. Investors will get value for every dollar if these metrics keep on building upon their strong trajectories.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, DigitalOcean comes in as a Moderate Buy, based on five Buys, and two holds. While the DOCN average price target of $68.29 is 19.7% of potential downside, it’s because most analysts haven’t reported on this stock in recent times.

The only analyst to have covered the stock within the past two months is Raimo Lenschow of Barclays (LON:), who placed a bullish price target of $95 on the stock.

DigitalOcean is expected to gain greater attention from analysts in the near future. This is a rare gem in the digital development market.

The metrics have been aligned with future upsides, while operating growth has facilitated increases in top line revenue. While DigitalOcean’s future is uncertain, there are many potential multi-baggers for those who take that risk.

Disclosure: Steve Gray Booyens held a position in DOCN at the time this article was published.

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Mike Robinson
Mike covers the financial, utilities and biotechnology sectors for Street Register. He has been writing about investment and personal finance topics for almost 12 years. Mike has an MBA in Finance from Wake Forest University.