Can PagerDuty (PD) stock regain lost ground in the evolving market?

PagerDuty’s (NYSE: PD) IPO was one of the most successful market debuts the tech sector witnessed last year, with the stock nearly doubling in the first few weeks of the event. After retreating from the post-IPO peak, the stock has remained pretty low and took a severe beating from the selloff spurred by the recent virus outbreak.

Stock Gains

However, the trend reversed and the shares returned to the growth path after hitting a new low in mid-May. Analysts’ consensus rating is buy, with an average price target of $30 that represents an 11% upside. But investors need to weigh the risks before buying the stock which according to some experts is overvalued. The main reason behind the recent rally is the optimism in the market for companies that provide and support digital transformation and cloud migration, a trend that is picking up due to the rapid adoption of remote working.

Loss Narrows

For the first quarter of 2021, The Silicon Valley-based provider of cloud computing solutions reported a loss of $0.04 per share, which is narrower than the loss reported in the year-ago period. Buoyed by the 33% revenue growth, the management forecast double-digit growth for the second quarter and fiscal year. The results also topped the Street view.

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It simply means that PagerDuty’s products, such as Modern Incident Response and Event Intelligence, are in high demand. It is expected that all the efforts that went into product innovation, marked by the incorporation of machine leanings and automation, will be paid off in the coming months. Moreover, the solutions offered by the company have wide applications in the ongoing digitalization, wherein information is mostly accessed remotely.

Mixed Outlook

But that doesn’t mean the tech firm is insulated from the economic fallout from the COVID-19 outbreak, especially in the mid-market where customers typically tend to defer capital spending to preserve liquidity. Also, it needs to be seen how effectively would the management be able to execute on its aggressive plan to expand the ecosystem and forge new partnerships. On the other hand, the present crisis might expedite the company’s expansion, beyond DevOps and IT to areas like crisis management, logistics, and frontline healthcare.

At the earnings conference call, Jennifer Tejada, chief executive officer of PagerDuty, cautioned that the persistent uncertainty can pose risks to the business, though the company has managed to remain agile during the COVID period aided by the strength of its customer base and competitive price structure.

“As companies learn from the rapid pivots they undertook this quarter, we expect digitization, cloud adoption, DevOps, security, distributed architecture, and remote working to continue to advance post-vaccine. All of these accelerating megatrends are tailwinds for us and drivers for investment in PagerDuty, especially as recovery begins.”

PagerDuty’s CEO Jennifer Tejada

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The company’s stock has lost about 48% since last year and is currently trading slightly above the levels seen at the beginning of the year. It regained momentum after slipping to an all-time low a few weeks ago and has reached the pre-crisis levels once again, before retreating slightly following the mixed first-quarter results.