Does PagerDuty (NYSE:PD) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that PagerDuty, Inc. (NYSE:PD) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for PagerDuty

What Is PagerDuty's Debt?

As you can see below, at the end of April 2024, PagerDuty had US$448.7m of debt, up from US$283.4m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$592.8m in cash, so it actually has US$144.1m net cash.

A Look At PagerDuty's Liabilities

The latest balance sheet data shows that PagerDuty had liabilities of US$273.1m due within a year, and liabilities of US$462.9m falling due after that. Offsetting these obligations, it had cash of US$592.8m as well as receivables valued at US$77.5m due within 12 months. So its liabilities total US$65.7m more than the combination of its cash and short-term receivables.

Of course, PagerDuty has a market capitalization of US$2.14b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, PagerDuty also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if PagerDuty can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year PagerDuty wasn't profitable at an EBIT level, but managed to grow its revenue by 13%, to US$439m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is PagerDuty?

While PagerDuty lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$71m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for PagerDuty you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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