RBC Calls PagerDuty A Disruptive Force, But Stock Properly Valued After 93% Surge

Shares of digital operations management company Pagerduty Inc PD have gained more than 93 percent since its initial public offering, which RBC Capital says fairly values the stock at current levels.

The Analyst

RBC Capital's Matthew Hedberg initiated coverage of PagerDuty with a Sector Perform rating and $47 price target.

The Thesis

Hedberg said PagerDuty is akin to a "central nervous system" that combines digital signals from hundreds of partners and then analyzes the signals to identify events and notify the appropriate parties to take action in real-time. By targeting areas such as IT operations management and security operations centers, PagerDuty addresses a potential $25 billion market that spans 85 million companies worldwide.

By comparison, the company has just 380,000 paying customers today, which implies a penetration rate of less than 1 percent. The analyst said among the paying base, the company counts 228 customers with over $100,000 in annual recurring revenue and 12 with an ARR of more than $1 million.

PagerDuty has also shown four consecutive quarters of net expansion of more than 130 percent, including 140 percent in its most recent quarterly earnings report, the analyst wrote. These strong metrics signals significant cross and up-sell opportunities among the under-penetrated install base along with strong renewal rates.

The stock's strong surge since its IPO implies shares are trading at 18.7 times estimated 2020 EV/S, which Hedberg said prices in "much of our enthusiasm."

Price Action

PagerDuty's stock traded higher by 6.2 percent around $49.28 per share Monday afternoon.

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