Stock Story -
What Happened: Shares of IT incident response platform PagerDuty (NYSE:PD) jumped 7% in the afternoon session after major indices soared as yields declined after the Bureau of Labour Statistics reported CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of May 2024 came in better than expected at 3.3% year on year (versus analysts' expectations for 3.4%). The data also revealed that inflation was flat (unchanged) month on month.
The inflation results benefitted from a 2% decline in the energy index, while shelter inflation remained sticky (up 0.4% m/m and 5.4% y/y).
Sticky inflation is exactly what has delayed the Fed's planned rate cuts in 2024, with some market participants likely worried that inflation might stay higher for longer. Today's report eased those worries a bit.
Separately, the Federal Open Market Committee kept interest rates at 5.25% to 5.50% following its June 2024 monetary policy meeting while also projecting no more than one rate cut in the second half of the year. The committee noted in its post-meeting statement that, "In recent months, there has been modest further progress toward the Committee's 2 percent inflation objective." The dovish comment suggests the Fed is moving closer to its goal of bringing inflation back to the 2% target.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
Adding to the positive aspect, Craig-Hallum analyst Jeff Van Rhee upgraded the stock's rating from Hold to Buy and raised the price target from $21 to $30. The new price target indicated a potential 40% upside from where shares traded when the upgrade was announced.
Is now the time to buy PagerDuty? Find out by reading the original article on StockStory, it's free.
What is the market telling us: PagerDuty's shares are very volatile and over the last year have had 11 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 15% on the news that the company reported fourth-quarter results and provided full-year revenue guidance below expectations, suggesting a slowdown in demand. In addition, billing came in below expectations during the quarter, while revenue was narrowly ahead.
On the other hand, PagerDuty recorded strong growth in customers this quarter. However, there were weaknesses in the SMB segment (drove 16% of ARR at the end of FY '24) as the company observed a decline in net new customers and dollar-based net retention. In addition, the company expects the transition from a monthly to daily revenue recognition to impact revenue growth in the first quarter of the year, with the expectation for an acceleration in the rest of the year. Overall, this was a mixed quarter for PagerDuty, with the guidance weighing on shares.
PagerDuty is down 4.9% since the beginning of the year, and at $20.84 per share it is trading 21.4% below its 52-week high of $26.50 from January 2024. Investors who bought $1,000 worth of PagerDuty's shares 5 years ago would now be looking at an investment worth $376.69.
