PD

We rate PagerDuty, Inc. (PD) as Avoid with a composite score of 37.5/100 at a current price of $6.38. The stock falls in the bottom quintile of our universe across key quantitative factors, and the multi-factor weakness suggests a high probability of continued underperformance.

The rating is primarily driven by strength in value (54th percentile) and quality (44th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (16th percentile) and investment (39th percentile) tempers our overall conviction. We assign a Narrow Moat rating (51/100), High uncertainty, and Standard capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

PagerDuty, Inc. holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 37.5/100 places it at rank #3844 in our full 7,333-stock universe. At $1.5B in market capitalization, PagerDuty, Inc. is a small-cap player in the Services space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 7%, though momentum at the 16th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 85% (+25.2pp vs sector) narrow to operating margins of 2% (-1.7pp vs sector) and net margins of 65.2%, yielding a gross-to-net conversion rate of 77%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $6.38, PagerDuty, Inc. is trading near fair value based on current fundamentals. Our value factor score of 54/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 1.9x (a 92% discount to the sector median of 23.7x), EV/EBITDA of 36.1x (at a premium), P/B of 1.9x, P/S of 1.2x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a High uncertainty rating to PagerDuty, Inc.. Key risk factors include elevated market sensitivity (beta of 1.43), significant leverage (123% debt-to-equity). The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.43); significant leverage (123% debt-to-equity). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 43th percentile and quality factor at the 44th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 85% provide a buffer against cost pressures. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate PagerDuty, Inc.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 101.4%, and the balance sheet is managed within acceptable parameters (D/E: 123%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; PagerDuty, Inc. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. Absent a dividend, the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, PagerDuty, Inc. receives a Avoid rating with a composite score of 37.5/100 (rank #3844 of 7,333). Our quantitative framework assigns a Narrow Moat (51/100, trend: stable), High uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 39/100.

Our analysis does not support a constructive view on PagerDuty, Inc. at this time. The combination of the current quantitative profile, high uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.