TLDR
- Russell Investments Group Ltd. increased its DigitalOcean holdings by 75.5% to 285,079 shares worth $9.52 million
- DigitalOcean beat Q2 earnings expectations with $0.59 per share vs $0.47 expected and 13.6% revenue growth
- Stock has declined nearly 19% over the past year despite recent earnings beat
- Analysts maintain mixed outlook with average target price of $41.45 and six buy ratings versus one sell
- Valuation models suggest the stock may be undervalued by nearly 40% at current levels
DigitalOcean stock has captured attention recently following major institutional moves and earnings results that paint a complex picture for the cloud computing company.
Russell Investments Group Ltd. made a substantial bet on DigitalOcean in the first quarter. The investment firm increased its stake by 75.5%, bringing its total holdings to 285,079 shares valued at approximately $9.52 million.
The move came as other institutional investors also adjusted their positions. GAMMA Investing LLC boosted its holdings by 336.1% to 1,064 shares. Farther Finance Advisors LLC increased its position by 135,100% to 1,352 shares.
Canada Pension Plan Investment Board entered a new position worth $133,000 in the fourth quarter. Cerity Partners LLC also established a fresh stake valued at $223,000 in the first quarter.
These institutional moves preceded DigitalOcean’s second-quarter earnings report on August 5th. The company delivered $0.59 per share, beating analyst expectations of $0.47.
Revenue reached $218.70 million for the quarter, exceeding estimates of $216.62 million. This represented a 13.6% increase compared to the same period last year.
The earnings beat provided a temporary boost to the stock. DigitalOcean shares traded up 5.2% on Friday, gaining $1.55 to close at $31.54.
However, the stock’s longer-term performance tells a different story. Shares have declined nearly 19% over the past year despite recent gains.
Analyst Sentiment Shows Mixed Outlook
Wall Street analysts remain divided on DigitalOcean’s prospects. Morgan Stanley raised its price target from $41 to $44 following the earnings report, maintaining an overweight rating.
Canaccord Genuity Group also increased its target price from $45 to $49 with a buy rating. Wall Street Zen upgraded the stock from hold to buy in late June.
Not all analyst moves were positive. Citigroup reduced its price target from $50 to $40, though it maintained a buy rating. Stifel Nicolaus set a $36 price target.
The mixed analyst sentiment reflects in the ratings distribution. Six analysts rate the stock a buy, five give it a hold rating, and one assigns a sell rating.
The consensus target price stands at $41.45, suggesting potential upside from current levels. Trading volume on Friday reached 1.79 million shares, slightly above the average daily volume of 1.73 million.
Valuation Questions Persist
Recent analysis suggests DigitalOcean may be trading below its fair value. One valuation model indicates the stock could be undervalued by nearly 40%.
This assessment points to a fair value of approximately $50 per share. The analysis considers growth projections and margin assumptions specific to DigitalOcean’s market position.
However, competitive pressures from larger cloud providers pose ongoing challenges. The company primarily serves small and medium-sized businesses, a segment that can experience higher customer churn rates.
DigitalOcean’s 52-week trading range extends from $25.45 to $47.02. The stock currently trades below its 200-day moving average of $32.31 but above its 50-day average of $29.27.
The company maintains a market capitalization of $2.87 billion with a price-to-earnings ratio of 24.26. Its beta of 1.75 indicates higher volatility compared to the broader market.
Company guidance for fiscal 2025 calls for earnings between $2.05 and $2.10 per share. Third-quarter guidance ranges from $0.45 to $0.50 per share.
Insider activity included a recent sale by executive Bratin Saha, who sold 3,461 shares at $27.77 each on June 18th. This transaction reduced his holdings to 294,546 shares valued at approximately $8.18 million.
