PagerDuty, Inc.

PagerDuty, Inc. (NYSE: PD) provides on-call management software. Its platform takes digital signals from practically any software-enabled system or device, combines them with human response data, and orchestrates teams to perform appropriate real-time actions. The majority of its revenue comes from cloud-hosted subscription fees, which are the company's primary source of revenue.

Why Should Investors Exit?

• Decline in Operating Profits: The company reported an increase in loss from operations to USD 24.82 million in Q3FY22 (ended October 31, 2021) compared to USD 21.84 million in Q3FY21. Further reported an increase in net losses to USD 26.34 million in Q3FY22 vs. USD 20.61 milllion in Q3FY21.
• Leveraged Balance Sheet: With a Debt/Equity ratio of 1.03x as of September 30, 2021, compared to the industry median of 0.16x, the company is exposed to a higher balance sheet risk than its peers. Furthermore, its %Long Term Debt to Total Capital ratio was 50.7%, compared to the industry average of 14.4% for a similar period. These leveraged financials put the company on the verge of extreme swings due to the slightest change in interest rates.
• Increase in Accounts Payable Days: In comparison to the industry, the company has a high average Accounts Payable days, which means it takes a longer time to pay its suppliers. Payable days were 62.4 days in Q3FY22, compared to an industry median of 38.7 days. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

PD's stock price has fallen 20.12% in the past six months and is currently leaning towards the lower band of its 52-week range of USD 28.76 to USD 58.36. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 30.00.

Considering the company's leveraged balance sheet, a decline in operating earnings, macro headwinds, current valuation, and other technical indicators, we recommend a "Sell" rating on the stock at the closing price of USD 33.26, up 0.73% as of February 01, 2022.