TFSA Investors: 1 Top Tech Stock to Buy With $500

TFSA investors can consider owning quality tech stocks such as Datadog to benefit from outsized gains in 2024 and beyond.

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The TFSA (Tax-Free Savings Account) is a popular registered account in Canada. Introduced in 2009, the TFSA lets you invest across asset classes ranging from stocks, bonds, mutual funds, and exchange-traded funds.

Moreover, any returns earned in the TFSA are sheltered from Canada Revenue Agency (CRA) taxes. This tax-sheltered status makes the TFSA an ideal account to hold inflation-beating instruments such as equities.

In 2024, the CRA raised the TFSA contribution limit to $7,000, up from $6,500 in 2023. So, let’s see one top tech stock you can buy and hold in a TFSA with just $500.

An overview of Datadog

Valued at a market cap of US$41.6 billion, Datadog (NASDAQ:DDOG) is a quality growth stock you may consider owning in 2024. Since its IPO (initial public offering) in late 2019, DDOG stock has returned 233% to shareholders. So, a $500 investment in DDOG stock soon after its IPO would be worth more than $1,600% today.

Despite its outsized gains, DDOG stock trades 36% below all-time highs, allowing you to buy the dip and benefit from market-beating gains when investor sentiment improves.

Datadog is an observability and security platform for cloud applications. Its SaaS (software-as-a-service) platform integrates and automates processes such as infrastructure monitoring, application performance monitoring, log management, user experience monitoring, and cloud security.

Enterprises use the Datadog platform to enable digital transformation and cloud migration and to secure applications and infrastructure.

A strong year for Datadog

Despite an uncertain macro environment in 2023, Datadog reported revenue of US$2.13 billion in the last four quarters, an increase of 27% year over year. Its adjusted operating income stood at US$490.2 million, indicating a margin of 23%.

The tech company ended 2023 with an operating cash flow of US$660 million and a free cash flow of US$597.5 million, indicating it spent more than $60 million in capital expenditures. Unlike several other growth stocks, Datadog enjoys a positive and widening base of cash flow providing it with the flexibility to reinvest in growth and target acquisitions. Additionally, Datadog ended 2023 with a cash balance of US$2.6 billion.

Datadog delivered over 400 new features and capabilities to clients to help them meet cloud migration and digital transformation plans, resulting in higher customer engagement rates.

The company emphasized it ended the year with 396 customers with an annual recurring revenue (ARR) of US$1 million (or more), an increase of 25% year over year. Further, it also had 3,190 customers with an ARR of at least US$100,000, up 15% from the year-ago period.

What’s next for DDOG stock?

Similar to several other companies, Datadog has focused on improving the bottom line in recent years. In fact, its operating margin improved to 23% in 2023, up from a negative 1.5% in 2019. It also reported a GAAP (generally accepted accounting principles) net profit in 2023. Now, analysts expect DDOG to grow its GAPP net income by 58% annually through 2026.

Analysts tracking the tech stock remain bullish and expect shares to surge by more than 30% in the next 12 months.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Datadog. The Motley Fool has a disclosure policy.

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