PD: The Forgotten Child Of The SaaS FamilyThe Business
Pagerduty is the most overlooked publicly traded company with 70% 3-year CAGR revenue growth that also has 85% gross margins. The stock has fallen since its IPO in the spring of 2019, while it’s peers who also IPO’d in 2019 have soared (see Page 2). Pagerduty sits in the middle of all business software applications, taking in real time data from all these different applications (See paragraph 3). This real-time data is filtered through Pagerduty’s proprietary AI function, identifying future software problems. It then takes it one-step further by identifying specific personnel, or a team, who is responsible to resolve the digital breakdown while giving it context. This all occurs before the problem actually happens. Not only do employees experience less software headaches, the customer will have a more streamlined digital experience. Pagerduty helps reduce digital issues and outages for both customers and employees software.
Pagerduty is a double-edged sword that eliminates problems that negatively effect businesses both internally and externally. In a rapidly growing virtual world, where customers expect a flawless experience and companies are shifting to remote work, Pagerduty sits in the middle of this digital transformation. Pagerduty provides businesses the jump on future software problems that employees and customers will face. This is the only software that takes in real-time data, from multiple software programs, that analyzes and identifies future problems, alerting the correct team responsible for resolving these issues. Ensuring a seamless digital experience every time.
Pagerduty integrates with software giants such as AWS, Servicenow, Zendesk, Okta, Zoom, Slack, Microsoft Teams, Cloudfare and Datadog to name a few. Many of these partners are also customers including Okta, Datadog, Zoom and Cloudfare. The company has a robust customer base, growing from 34% of the Fortune 100 when they became public, to 60% as of their most recent earnings. Brick by Brick Capital believes it is clear that Pagerduty has a superior product as highlighted by the robust costumer base, revenue growth and an outstanding 95% renewal rate.
The Peer Group
A major proponent of our bullish thesis on Pagerduty stems from its discounted value when compared to its peers. Both Zscaler (ZS) and Cloudflare (NET), SaaS companies, have seen significant stock appreciation since they became public in 2019 rising 160% and 315% respectively, while Pagerduty has fallen 10% since its IPO. There is no fundamental reasoning for this discrepancy between the stock appreciation of its peers and the deprecation of its own.
Pagerduty has shown robust growth, margins, liquidity and a focus on spending towards research and development. These factors along with the macro-tailwinds of businesses expanding their digital footprints and their need to synthesis all the data, puts Pagerduty in a great spot to benefit in the long run. Brick by Brick Capital strongly believes that the company will get rerated over the coming months to something that is more comparable to its peers P/S ratio.
The Technical Analysis
At Brick by Brick Capital, our edge is discovering unique companies that have great fundamentals, macro-economic tailwinds with a large economic moat. We then use astute technical analysis to identify optimal entry points to minimize risk and maximize alpha. Pagerduty’s current price is at a significant level. It is breaking above both the short-term resistance line ($32.70 since 6/19/20) and its long-term resistance trend line (since 6/17/19). We believe now presents an optimal time to enter into the name, before a subsequent break out from these resistance levels. However, it is critical to point out that it has a near term immediate downside of $26. If earnings on 12/4/20 are not well received by the street, a retest of the post earnings low of $23 is in store. With this in mind, an opening position in Pagerduty should be no more than 50% of a full position. This allows an investor to average down on a pullback.
Conclusion
Pagerduty presents an exceptional risk-reward scenario for investors. It is a high growth, high margin business that has macro-economic tailwinds at its sails. Usually in these scenarios it requires an investor to pay sky-high valuations, however because of the lack of interest that the company has received this is not the case. Pagerduty is a true growth-value hybrid play in a market that is littered with overvalued tech companies.
