Stock Analysis & Ideas

PagerDuty: Could the Stock Change Its Course in Q4 ?

PagerDuty (NYSE:PD) impressed with its financial performance in the first three quarters of FY22. Revenues increased both on a year-over-year and a sequential basis. Meanwhile, its customer retention rate remained high. 

PagerDuty benefitted from the ongoing shift towards digital. Its multi-product offerings, expansion into newer markets, and solid customer base supported its growth. 

PagerDuty stock has fallen about 40% in the last six months despite the strong performance. Further, it’s down over 23% in 2022. The broader market selloff, primarily in high-growth tech shares, led to a decline in its price. 

What’s Next?

PagerDuty is scheduled to announce its Q4 financials on March 16. The continued digital transformation and the ongoing momentum in its business indicate that PagerDuty could deliver strong growth in Q4. 

Providing his outlook on PagerDuty’s upcoming quarterly results, RBC Capital analyst Matthew Hedberg expects the company to “deliver slight upside to Q4/22 results vs. Consensus revenue/EPS of $76.1M/($0.06) (+28% revenue growth vs. +34% last quarter off a 3-point more challenging comp), which implies FY/22 revenue growth of +31% y/y.” 

Hedberg expects PagerDuty to benefit from the continued digital shift and focus on automation. 

Comparing the decay in PD’s stock price to its peers, the analyst added that “relative to other growth software stocks, sentiment has been better with shares -17% since Q3/22 results vs. the S&P 500 -9%.” Hedberg is bullish on PD stock and finds its valuation attractive at current levels.

It’s worth noting that investor sentiment remains positive on PagerDuty stock as per the TipRanks’ Stock Investors tool. The data shows that 16.3% of the investors holding portfolios on TipRanks have increased their exposure to PD stock in the last 30 days. 

Further, about 3% of these investors added PD stock to their portfolios in the last seven days.

Besides Hedberg, Monness analyst Brian White is also bullish about PD’s prospects and sees strong upside potential. Overall, PD stock has received two unanimous buy recommendations. Meanwhile, the average PagerDuty price target of $55.50 implies 108.7% upside potential to current levels.

Conclusion

PagerDuty could continue to gain from digitization despite a normalization in growth amid the economic reopening. Further, new customer growth and international expansion could support its growth prospects. Moreover, PagerDuty announced the acquisition of Catalytic, a workflow automation platform, which will strengthen its enterprise offerings and drive its automation capabilities.  

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