One thing you can say about Cathie Wood is that she is persistent. An aggressive growth investor, she is also the co-founder, CEO and stock picker at Ark Invest. She likes to shake things up. She is not afraid to play the safe bets and buy some of her favorite stocks over and over again.
It publishes Ark Invest’s transactions at the end of each trading day. Something unusual happened Friday evening, as she announced her purchases from earlier in the day. Pager Service (NYSE:PD) was one of six existing positions she added on Friday. More importantly, she bought shares of the cloud-based provider of enterprise analytics and availability monitoring solutions every trading day in June. She obviously likes PagerDuty right now. Should you? Let’s take a closer look.
Show up for work
Business software companies aim to make businesses more efficient, and that’s precisely what PagerDuty’s growing range of offerings aims to accomplish. From automation tools that help accelerate task execution and reduce support costs to its incident management platform that enables customers to overcome setbacks and emerge from disruptions even smarter, PagerDuty’s ambition is not proof.
Growth has been the problem, especially given its recent string of net-earnings slowdowns. Year-over-year revenue growth has slowed for seven straight financial reports, from a starting point of 34% to just 8% nearly two years later.
Q2 2023: 34%
Q3 2023: 31%
Q4 2023: 29%
Q1 2024: 21%
Q2 2024: 19%
Q3 2024: 15%
Q4 2024: 10%
Q1 2025: 8%
PagerDuty’s net dollar retention rate has disintegrated from 116% to 106% over the past year, and its paying customer count has held steady around 15,100 over that period. The end result was also problematic. The company has never made a profit on a reported basis, and analysts don’t expect that to change anytime soon. He announced a small series of layoffs earlier this year, but it remains to be seen whether cost controls will pay off without sacrificing a potential return to top-line growth.
Knock on wood
Cathie Wood naturally has a more bullish reading of PagerDuty than the downward-sloping fundamentals. She has purchased a share of PagerDuty every trading day since May 31. Despite the recent trickle of daily purchases, it remains one of the smallest positions among the combined holdings of Ark Invest’s exchange-traded funds.
She’s not the only one buying. PagerDuty shares have climbed 21% in the past month.
There are a few reasons to be optimistic about PagerDuty’s near-term outlook. For starters, despite the single-digit revenue growth PagerDuty posted in its most recent quarter, Wall Street pros are predicting a return to double-digit revenue gains for the full year and an acceleration in each of the next two years.
Profitability on an adjusted basis is also expected to climb 14% next year and another 24% in fiscal 2027. That values ​​PagerDuty stock at 23 times this fiscal year’s adjusted earnings, but it also posted double-digit percentages in each of the last fiscal years. four reports.
There are still many naysayers, and that’s not necessarily a bad thing. Nearly 12% of PagerDuty shares are currently sold short, close to the all-time high reached earlier this year. In the right environment, even a modest bullish catalyst can prompt the boos to take cover, and the short squeeze would theoretically push the stock higher.
The sentiment could change after a buoyant June. Chad Bennett of Craig-Hallum upgraded the stock last week, rallying on the potential for accelerating revenue gains after hitting a low point in the fiscal first quarter. His new price target of $30 implies an additional 31% upside for the stock. A revived PagerDuty should result in either a resumption of customer growth or a reversal of declines in its dollar-based net retention rate. In an ideal world, it would be a bit of both leading the charge and PagerDuty reaching reported profitability sooner than expected. For now, a once-disadvantaged software-as-a-service company – or SaaS Stocks — begins to woo believers. Wood seems to have the right idea in purchasing PagerDuty this summer.
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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool posts and recommends PagerDuty. The Mad Motley has a disclosure policy.
Cathie Wood Bought This Stock Every Day Last Month: Should You? was originally published by The Motley Fool
