Brown Capital Management, an investment management company, released its “The Brown Capital Management Small Company Fund” third quarter 2024 investor letter. A copy of the letter can be downloaded here. The Small Company Fund returned 8.48% in the quarter, roughly in line with the Russell 2000 Growth index’s 8.41% return. The Fund has only gained 1.80% year to date, far behind the benchmark’s return of 13.22%, despite this quarter representing a minor move toward a fundamentally driven market. In addition, check the fund’s top five holdings to know its best picks in 2024.
The Brown Capital Management Small Company Fund highlighted stocks like Datadog, Inc. (NASDAQ:DDOG), in the third quarter 2024 investor letter. Datadog, Inc. (NASDAQ:DDOG) provides an observability and security platform for cloud applications. The one-month return of Datadog, Inc. (NASDAQ:DDOG) was -5.10%, and its shares gained 19.95% of their value over the last 52 weeks. On December 19, 2024, Datadog, Inc. (NASDAQ:DDOG) stock closed at $146.93 per share with a market capitalization of $49.915 billion.
The Brown Capital Management Small Company Fund stated the following regarding Datadog, Inc. (NASDAQ:DDOG) in its Q3 2024 investor letter:
“Other examples of negative sentiment include portfolio companies that reported earnings that met or exceeded expectations, but only saw their share prices go up slightly, stay flat or even decline. For example, Datadog, Inc. (NASDAQ:DDOG) is a leading SaaS-based, information technology (IT)-monitoring and analytics software platform for developers, IT operations and business users. The platform automates the monitoring of infrastructure, applications databases, networks, logs and security. Datadog’s platform is differentiated by providing a unified view of these systems via a visual interface configured to the needs of each user (i.e., a single pane of glass). Datadog delivered solid operating results in the second quarter of 2024, reporting revenue growth of 27% and raising 2024 full year revenue, operating income and earnings guidance. Despite these solid fundamental results, Datadog’s share price was down 11.8% in the third quarter. We speculate that these market reactions are evidence of the negative environment for high-growth companies. For more, please see the Detractors section below.
Datadog, mentioned above, automates the monitoring of infrastructure, applications databases, networks, logs and security. The company delivered solid operating results in the second quarter of 2024, reporting revenue growth of 27% and raising guidance for 2024 full-year revenue, operating income and earnings. Datadog noted improving consumption and demand trends among its enterprise customers and stabilizing trends among its small and mid-sized customers. On its earnings call, Datadog management disputed that it has interest in large acquisitions, notwithstanding news articles on July 17 that Gitlab was seeking a buyer and Datadog is among the potential suitors. Despite solid fundamental results, Datadog’s share price underperformed in the third quarter of 2024. This may be due to its premium valuation and investor worries about Datadog’s ability to sustain its current strong revenue growth in a softer economic environment. We remain confident in Datadog’s ability to deliver durable growth over the long term. We believe Datadog has a massive and underpenetrated total addressable market that is growing about 10% annually. We also believe Datadog has a strong competitive positioning in infrastructure monitoring and is gaining market share.”
A close-up of a laptop with a software engineer coding on the monitor.
Datadog, Inc. (NASDAQ:DDOG) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 71 hedge fund portfolios held Datadog, Inc. (NASDAQ:DDOG) at the end of the third quarter which was 79 in the previous quarter. In the third quarter 2024, Datadog, Inc. (NASDAQ:DDOG) delivered $690 million in revenues, up 26% year-over-year, and up 7% quarter-over-quarter. While we acknowledge the potential of Datadog, Inc. (NASDAQ:DDOG) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed Datadog, Inc. (NASDAQ:DDOG) and shared long-term stock picks of Tiger Global. In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.