Shareholders will be ecstatic, with their stake up 22% over the past week following PagerDuty, Inc.‘s (NYSE:PD) latest annual results. Sales hit US$166m in line with forecasts, although the company reported a statutory loss per share of US$0.77 that was somewhat smaller than the analysts expected. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We’ve gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
After the latest results, the seven analysts covering PagerDuty are now predicting revenues of US$209.5m in 2021. If met, this would reflect a sizeable 26% improvement in sales compared to the last 12 months. Losses are expected to be contained, narrowing 13% from last year to US$0.67. Before this earnings announcement, the analysts had been modelling revenues of US$210.3m and losses of US$0.52 per share in 2021. So it’s pretty clear the analysts have mixed opinions on PagerDuty even after this update; although they reconfirmed their revenue numbers, it came at the cost of a pretty serious reduction to per-share losses.
The consensus price target fell 23% to US$20.33 per share, with the analysts clearly concerned by ballooning losses. That’s not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic PagerDuty analyst has a price target of US$29.00 per share, while the most pessimistic values it at US$15.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It’s pretty clear that there is an expectation that PagerDuty’s revenue growth will slow down substantially, with revenues next year expected to grow 26%, compared to a historical growth rate of 41% over the past year. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 12% next year. So it’s pretty clear that, while PagerDuty’s revenue growth is expected to slow, it’s still expected to grow faster than the industry itself.
The Bottom Line
The most important thing to note is the forecast of increased losses next year, suggesting all may not be well at PagerDuty. Happily, there were no major changes to revenue forecasts, with the business still expected to grow faster than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
With that in mind, we wouldn’t be too quick to come to a conclusion on PagerDuty. Long-term earnings power is much more important than next year’s profits. At Simply Wall St, we have a full range of analyst estimates for PagerDuty going out to 2023, and you can see them free on our platform here..
That said, it’s still necessary to consider the ever-present spectre of investment risk. We’ve identified 3 warning signs with PagerDuty (at least 1 which doesn’t sit too well with us) , and understanding these should be part of your investment process.
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