PagerDuty, Inc. (PD) in San Francisco owns and manages a digital operations management platform that integrates digital signals from virtually any software-enabled system or device with human response data and orchestrates teams to perform real-time actions. Its solution assists businesses in streamlining and accelerating their digital transformation.

However, the stock has lost momentum of late. It has declined 17.1% in price over the past month and 22.7% over the past three months. In addition, it is currently trading below its 50-day and 200-day moving averages of $39.29 and $40.69, respectively, indicating bearish sentiment.

PD has made solid progress in achieving its clients' trust by helping them deliver a perfect digital experience to their customers over the years. Nevertheless, given its mixed financials and premium valuation, the stock’s prospects look uncertain.

Click here to check out our Cloud Computing Industry Report for 2021

Here is what could influence PD's performance in the upcoming months:

Strategic Partnership

Last month, PD announced a multi-year go-to-market partnership with Amazon Web Services, Inc. (AWS) to ensure clients' cloud migration and digital operational maturity experiences are easy, agile, and seamless. In addition, the company stated that a fully managed Rundeck Cloud automation option would be available on AWS in early 2022, and its enterprise offering would be accessible in AWS Marketplace. This should enable centralized approaches to numerous distributed teams and hybrid infrastructure, resulting in faster digital transformation.

Mixed Financials

PD's revenue increased 33.4% year-over-year to $71.76 million for its third fiscal quarter, ended October 31, 2021. Its cash and cash equivalents grew 6.1% for the nine months ended October 31, 2021, to $359.74 million.

However, its loss from operations surged 13.6% year-over-year to $24.82 million. The company's net loss increased 27.8% from the prior-year quarter to $26.34 million, while its loss per share rose 19.2% from the year-ago value to $0.31.

Mixed Profitability

PD's 83.3% gross profit margin is 68.6% higher than the 49.4% industry average. Also, its 19.1% levered FCF margin is 62.3% higher than the 11.8% industry average.

However, PD's 0.34% trailing-12-months asset turnover ratio is 47.4% lower than the 0.64% industry average. Also, its ROA, EBITDA margin, and ROC are negative 12.9%, 29.9%, and 8.9%, respectively. Furthermore, its trailing-12-months cash from operations stood at a negative $3.98 million, versus the $116.95 million industry average.

Premium Valuations

In terms of forward Price/Book, the stock is currently trading at 11.08x, which is 90.2% higher than the 5.82x industry average. Also, its 8.89x forward EV/Sales multiple is 122.3% higher than the 4x industry average. Furthermore, PD's 10.38x forward Price/Sales is 154.2% higher than the 4.08x industry average.

POWR Ratings Reflect Uncertainty

PD has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PD has a C grade for Value and Quality. The company's higher than industry valuation is in sync with the Value grade. In addition, PD's mixed financials and profitability are consistent with the Quality grade.

Of the 75 stocks in the D-rated Technology – Services industry, PD is ranked #45.

Beyond what I have stated above, one can view PD ratings for Growth, Stability, Momentum, and Sentiment here.

Bottom Line

Though PD has made significant progress through its collaborative efforts with different organizations, its mixed profitability and lofty valuations continue to threaten its future performance. So, we believe investors should wait for its prospects to stabilize before investing in the stock.

How Does PagerDuty Inc. (PD) Stack Up Against its Peers?

While PD has an overall C rating, one might want to consider its industry peers Celestica Inc. (CLS), and NetScout Systems Inc. (NTCT), which have an overall A (Strong Buy) rating.

Click here to check out our Cloud Computing Industry Report for 2021

PD shares fell $0.92 (-2.79%) in premarket trading Friday. Year-to-date, PD has declined -23.26%, versus a 24.82% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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