One thing you can say about Cathie Wood is that she’s persistent. The aggressive growth investor who’s also the co-founder, CEO and top stock picker at Ark Invest likes to swing the fence. She’s also not afraid to play it safe, buying up some of her favorite properties time and time again.
She publishes Ark Invest’s trades at the end of each market day. Something unusual happened on Friday night when she announced her purchases from earlier in the day. PagerDuty (NYSE:PD) was one of six existing roles she expanded on Friday. More importantly, she bought shares of the cloud-based provider of enterprise analytics and uptime monitoring solutions every trading day in June. She’s clearly a fan of PagerDuty right now. How about you? Let’s take a closer look.
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Enterprise software companies want to make businesses more efficient, and that’s what PagerDuty’s growing offering aims to achieve. From automation tools that help increase task completion speed and reduce support costs to the incident management platform that helps customers navigate hiccups and emerge from disruptions even smarter, PagerDuty’s ambition is unwavering.
Growth has been the problem, especially given the recent string of slowing revenue gains. Year-over-year revenue growth has slowed for seven consecutive financial reports, from a starting point of 34% to just 8% nearly two years later.
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Q2 2023: 34%
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Q3 2023: 31%
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Q4 2023: 29%
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Q1 2024: 21%
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Q2 2024: 19%
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Q3 2024: 15%
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Q4 2024: 10%
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Q1 2025: 8%
PagerDuty’s dollar-based net retention rate has fallen from 116% to 106% over the past year, and the number of paying customers has stagnated at around 15,100 in that time. The bottom line has also been problematic. It has never made a profit on a reported basis and analysts don’t expect that to change anytime soon. It announced a small round of layoffs earlier this year, but it remains to be seen whether cost control will pay off without sacrificing a potential return to revenue growth.
Knock on wood
Cathie Wood, of course, has a more optimistic view of PagerDuty than the downward-sloping fundamentals. She has bought a piece of PagerDuty every trading day since May 31. Despite the recent daily flurry of buying, it remains one of the smallest positions in the combined holdings of Ark Invest’s exchange-traded funds.
She’s not the only one buying. Shares of PagerDuty rose 21% last month.
There are reasons to be optimistic about PagerDuty’s near-term prospects. For starters, despite the single-digit revenue growth that PagerDuty showed in the last quarter, Wall Street pros expect the company to return to double-digit revenue growth for the entire fiscal year and to accelerate in each of the next two years.
Profitability on an adjusted basis is expected to rise 14% next year and another 24% in fiscal 2027. This puts the PagerDuty stock price at 23 times that fiscal year’s adjusted earnings, but in each of the past four reports there have also been double percentage wins.
The naysayers are still aplenty, and that’s not necessarily a bad thing. Nearly 12% of PagerDuty shares are currently shorted, near an all-time high from earlier this year. In the right environment, even a modest bullish catalyst could send the boo-birds running for cover, and the short squeeze would theoretically push the stock higher.
Sentiment could turn around after a lively June. Craig-Hallum’s Chad Bennett upgraded the shares last week, citing the potential for an acceleration in sales growth after the low in the first fiscal quarter. His new $30 price target implies another 31% upside potential for the stock. A resurgence of PagerDuty should result in either the resumption of customer growth or a reversal in the retreat of the dollar-based net retention rate. In an ideal world, it would be somewhat in charge, and PagerDuty would reach reported profitability sooner than expected. For now, one software-as-a-service company – or SaaS stock – is starting to court believers. Wood seems to have the right idea when it comes to buying PagerDuty this summer.
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Rick Munarriz has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends PagerDuty. The Motley Fool has a disclosure policy.
Cathie Wood Bought These Stocks Every Day Last Month: Should You Too? was originally published by The Motley Fool
