This small tech with big growth prospects is approaching a buying point

Shares of surveillance software maker PagerDuty Inc. (NYSE:PD) are approaching a cup-handle buy point above $33.77.

For investors looking for off-the-beaten-path stocks that could become winners, PagerDuty fits the bill.

This company has several characteristics of stocks that increase in price over time:

• It is a young company, which went public in April 2019.
• It’s also a small company, with a market capitalization of $2.8 billion. Small companies are more agile than large companies and more adaptable to changing business and economic conditions.
• It’s also easier for a small business to launch new projects because there are fewer layers of bureaucracy.
• PagerDuty is expected to increase its earnings by more than 1000% in the current year, fiscal 2024.
• In fiscal 2025, earnings are expected to grow another 38%.
• This is in a business where demand is clearly high and expected to grow.

At the top of analysts’ opinions

The stock rose 14.76% in four and a half times average revenue on March 16, after better-than-expected fourth fiscal quarter results. Earnings were $0.08 per share on revenue of $101 million. Analysts were looking for $0.02 per share in earnings and $98.8 million in revenue.

Those results significantly beat numbers from the previous year, when the company posted a loss of $0.04 per share on revenue of $78.5 million. The company pivoted to profitability in 2023, posting net earnings of $0.04 per share.

PagerDuty turned profitable sooner than some analysts expected. Following the previous earnings report in December, stocks rose in each of the following three weeks.

During the company’s March 16 earnings call, CEO Jennifer Tejada noted that the company beat its own forecast and achieved profitability a year ahead of its plan.

“We also surpassed $400 million in annual recurring revenue through a combination of continued product leadership in digital operations and our multi-year goal to win in enterprise and midsize businesses,” she said.

Annual recurring revenue is a key metric for a company like PagerDuty, which sells its services on a subscription or contract basis.

“We ended the year with 68 of the Fortune 100 and nearly half of the Fortune 500 relying on PagerDuty to modernize their operations where we continue to see significant opportunities for expansion,” Tejada added.

strong orientation

For the current quarter, PagerDuty expects revenue of between $102 million and $104 million, a growth rate of 19% to 22%. It projects net earnings per diluted share in the range of $0.09 to $0.10.

Tejada said that implies an operating margin of around 6% to 7%.

For the full fiscal year 2024, the company expects revenue of between $446 million and $452 million, a growth rate of 20% to 22%, and net earnings per diluted share of between 0.45 and 0. $.50. This would imply an operating margin of 8% to 9%.

Tejada also said the company expects free cash flow to increase in the second half. This follows reports from many analysts and other companies, who expect trading conditions to improve as the year progresses.

Of course, these expectations could always be scuttled if various economic events, such as a recession or a continued rise in interest rates, were to dampen business spending.

Extended operating margin

Citing “an uncertain economic environment,” Tejada said the company was “in a strong position this year to pursue revenue growth above 20% and significantly increase our operating margin.”

After the report, analysts at Morgan Stanley, Robert W. Baird and Royal Bank of Canada raised their price targets, as shown by analyst data from MarketBeat.

The consensus rating is Moderate Buy, with a price target of $34.45, an upside of 10.61%.

If you view its chart with a bar or candlestick view, you can see that PagerDuty started to form a consolidation in late March 2022. The stock rallied from its November 9 low and recorded a gain of 20, 11% over the last three months. .

It started to form a handle when it hit resistance at $33.77 on February 2, which you can easily spot on its chart. This is the current buy point. As of March 17, stocks were trading 7.8% below that point, standing 6.1% above their 5-day moving average.

As a small company, it’s not particularly surprising to see PagerDuty with a high beta of 2.03, indicating that it’s more volatile than the overall market. For investors interested in a technology with strong growth prospects and who can tolerate some volatility, this would be a strong watchlist candidate.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.