Analysts at Goldman Sachs double-upgraded DigitalOcean (DOCN) to Buy from Sell in a note to clients Tuesday, maintaining a price target of $33 per share on the stock.
Following the note, DOCN shares have jumped more than 11% to over $$26 per share. However, the stock has declined over 26% in the last three months. The Goldman Sachs price target represented a potential 33% increase from Monday's close.
Goldman Sachs noted the "significant stock underperformance" as one of the reasons for the upgrade.
"Stock underperformance has likely been driven by a cyclical normalization in cloud optimization spending, which has been particularly acute in subsectors where DO has outsized exposure such as SaaS builders, Video Games, Streaming, and Web Agencies; as well as an overhang from the ongoing management transition (since 8/25, DO is undergoing a search to find a new CEO)," explained the analysts.
"We believe the business is now approaching a cyclical trough," they added. "As macro stabilizes, we believe the structural improvements that DO has made to its mix shift and cost structure will become more obvious, driving better revenue growth and continued FCF margin expansion."
The investment bank commented that while we expect the ongoing management transition to remain an overhang until a new CEO is announced, they do not see a material shift in DOCN's strategy.