Dynatrace, Inc. (DT): A Bull Case Theory

We came across a bullish thesis on Dynatrace, Inc. on Business Invest’s Substack by Francesco Ferrari. In this article, we will summarize the bulls’ thesis on DT. Dynatrace, Inc.’s share was trading at $41.38 as of January 13th. DT’s trailing and forward P/E were 24.78 and 22.37 respectively according to Yahoo Finance.

Dynatrace is a high quality software company positioned as a direct competitor to Datadog, operating in the fast growing market for application performance monitoring and cloud infrastructure observability. Its platform provides a comprehensive, end to end solution that allows enterprises with complex and heavy technology stacks to automatically detect issues, identify root causes, and resolve performance problems before they impact end users.

This automated, AI driven approach makes Dynatrace particularly valuable for mission critical applications where downtime, latency, or system failures can have immediate financial and reputational consequences. The company has built a strong competitive position by offering a true 360-degree monitoring platform that reduces manual intervention for IT teams while improving reliability and customer experience across digital environments.

From a financial perspective, Dynatrace exhibits highly resilient and attractive operating metrics that support its aggressive quality growth profile. Revenue has compounded at just over 21% annually over the past three years, demonstrating sustained demand for its solutions despite a more cautious enterprise spending environment.

The business benefits from strong software economics, reflected in gross margins of nearly 82% and a free cash flow margin approaching 26%, highlighting both scalability and disciplined cost management. While return on invested capital remains modest, the company’s cash generation and reinvestment profile suggest improving efficiency as the platform continues to scale.

A reverse discounted cash flow analysis indicates that current market expectations remain reasonable rather than excessive. Assuming a 25x sentiment multiple on cash flows, modest annual dilution, and long-term cash flow stabilization around 26%, Dynatrace would need to sustain revenue growth of approximately 21% annually to deliver a 15% annual return.

Given that the company has already grown revenues at a similar pace over the past three years, this growth assumption appears achievable, reinforcing the stock’s appeal as a durable, high quality compounder rather than a speculative growth story.

Previously, we covered a bullish thesis on Datadog, Inc. (DDOG) by Elliot on Substack in May 2025, which highlighted concerns around valuation and slowing growth within the observability space. DDOG’s stock price has appreciated by approximately 9.64% since our coverage. This is because the thesis played out as valuation compression materialized despite solid execution. Francesco Ferrari shares a similar thesis but emphasizes stronger profitability, cash flow durability, and more reasonable growth expectations through Dynatrace.

READ NEXT: 30 Stocks That Should Double in 3 Years and 11 Hidden AI Stocks to Buy NOW 

Disclosure: None.