The Latest Growth Stock Alert

Chris Dios - May 20, 2020

PagerDuty, Inc. (NYSE: PD)

For this week’s Growth Stock Blueprint Alert, we will be looking at PagerDuty, Inc. (NYSE: PD), which is a company that operates a platform to receive digital signals from software-enabled devices and combines them with human response feeds. This allows companies to better orchestrate in team-based environments and make the right cooperative decisions in real-time.

PagerDuty operates both in the United States and around the world to provide advanced analytics for incident responses, event intelligence, business visibility, and on-call management. These solutions help address the requirements of corporate management in their digital operations and these are the types of companies that are designed to weather the effects of a COVID19 economy.

PagerDuty serves clients in several different industries, financial services, telecommunications, travel, retail, hospitality and travel, and media/entertainment. PagerDuty has its headquarters in San Francisco, California and the company has been in operation since 2009. At current share price valuations, PagerDuty is trading with a market cap of $1.95 billion.

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  • Corporate Revenue versus Market Revenue: PagerDuty’s revenue growth of 18% per year is expected to grow at a rate that is faster than the averages seen in the U.S. stock market (under 9% per year).
  • PagerDuty’s revenue is expected to grow at a rate of almost 19% per year. 
  • PagerDuty’s revenue figure increased by an incredible 41% during the last year.

Recent stock market volatility has left investors in a highly precarious position as small-cap stocks in the Russell 2000 have underperformed the large-cap counterpart S&P 500. However, the Russell 2000 is notorious for its broad multitude of flaws and it should be remembered that this is not a reflection of the entire small-cap market environment.

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  • Cash Runway Stability: PagerDuty has a cash runway that is considered to be sufficient for at least three years based on the company’s current levels of free cash flow. 
  • Cash Runway Forecasts: PagerDuty has a cash runway that is considered to be sufficient for at least three years because the company’s rate of growth in free cash flow continues expanding at rates of 44% per year.

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  • Short-Term Debt Liabilities: PagerDuty’s short-term corporate assets of roughly $405 million surpasses the company’s short-term debt liabilities (at about $115 million). 
  • Long-Term Debt Liabilities: PagerDuty’s short-term corporate assets (of roughly $405 million) also surpasses the company’s long-term debt liabilities (at about $12.4 million).

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  • Corporate Debt Levels: PagerDuty is considered to be a company that has a strong debt profile because the company is currently debt-free. 
  • Debt Reduction: PagerDuty is also considered to be a company with a strong debt profile because PagerDuty hasn’t had debt in the last five years.

This is why we focus only on companies that have strong fundamentals and the ability to continue performing well in a post-COVID19 economy. PagerDuty is one example of a company that is capable of roaring back in the event that we continue to see a recovery in the market. PagerDuty has a lot of strength in its underlying businesses, which are characterized by favorable fundamentals and an expanded client base in addressable markets.

All of this gives PagerDuty the ability to grow its revenue figures at an increasingly faster rate of speed. S&P 500 companies tend to have large reserves of cash to access in the event of a market downturn. Small-cap growth companies, in many cases, do not have access to the same resources and this can make them more vulnerable to economic downturns.

However, the advantages found when dealing with small-cap stocks stem from the fact that growth companies like PagerDuty have already shown an ability to deliver on the market’s high expectations for growth. This can lead to strong rebounds following instances of economic downturn and this puts PagerDuty shares in a great position to produce gains when taking long positions near current price levels.

PagerDuty’s incidence management platform has quickly emerged as a leading offering for solutions in digital operations. PagerDuty’s software-as-a-service (SaaS) allows companies that use specific functionalities (i.e.on-call scheduling and reliable notifications) to detect infrastructure issues and make sure they are fixed.

PagerDuty’s platform also enables IT professionals and web developers to resolve incidents that impact the business while ensuring that a proper customer service infrastructure can give customers the best experience. Using these tools, clients are able to manage events impacting the company’s IT environment and the overall experiences of customers. PagerDuty’s customizable notifications can be sent using SMS messages, emails, or phone calls.

PagerDuty initially went (at under $25 per share) in April 2019. Over the next fiscal year, PagerDuty was able to report incredible adjusted gross margins (above 85%) and available cash of more than $350 million. PagerDuty now works with nearly two-thirds of the companies in the Fortune 100 companies.  Even better, PagerDuty can also name nine companies in the Fortune top 10 as its clients. 

PagerDuty’s platform aims primarily to accelerate general efficiencies for businesses in managing digital operations in any enterprise. During the fiscal year 2020, PagerDuty’s revenue increased by more than 40% on an annualized basis (to reach above $116 million). Even more impressive is the company’s customer retention rate is currently above 90% and PagerDuty’s average revenue for each client has seen gains for three straight quarters. 

Over the next few years, it is widely expected that companies continue spending more money on needed digital transformations, and this trend is especially true now that the work-from-home market has become so important for maintaining strength in the broader economy. In the next decade, these are trends that are expected to explode and growth stock investors can still capitalize on these events while they are in their earliest stages.

As long as businesses need to increase system security while providing greater access to customer service employees, broader demand for PagerDuty’s digital operations management platform should continue to grow. Currently, PagerDuty’s stock is experiencing declines on a YTD basis and this offers growth investors an excellent opportunity to establish long positions at favorable levels. 

Shares of PagerDuty stock are currently trading at levels that give the company a forward price to sales (P/S) ratio of just 3.5x, which is far below many of its competitors in the technology industry. Over the next two years, PagerDuty’s revenue growth is expected to above 23%, which is not the type of trend most company’s are likely to experience during this time frame. So while nobody can predict exactly how the COVID19 pandemic will impact the broader market, small-cap growth investors can still view companies like PagerDuty as strong contenders for outperformance.

Key Stock Technical Analysis: PagerDuty, Inc. (NYSE: PD)

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PagerDuty is currently facing several near-term tailwinds that could help to propel the company’s share prices and the first suitable buy zone for the stock can now be found at $24.40. Trend momentum is clearly directed in an upward move but this small retracement will give small cap growth investors a more favorable valuation to used when establishing long positions. With the current market environment supportive for additional growth in this emerging company, it seems to be just a matter of time before this stock enters the radar for a larger number of investors in the market.

Chris Dios is an American writer and entrepreneur based in the Greater NYC area.

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