PagerDuty Stock: Strong Cash Flow Poised for a Re-Rating?

We think PagerDuty (PD) stock is worth a look: It is growing, producing cash, and available at a significant valuation discount. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market.

What Is Happening With PD

PD is down 14% so far this year and is now available at a significant discount to its 3-month, 1-year, and 2-year highs. This can be attributed to decelerating revenue growth, highlighted by a dollar-based net retention rate of 100%, and investor caution during its shift to a usage-based pricing model.

The stock may not reflect it yet, but here is what’s going well for the company: PagerDuty is generating solid free cash flow of $20.9 million and maintains a moderate debt to equity ratio around 1.23. It continues to attract enterprise clients, with those exceeding $100K in Annual Recurring Revenue growing 5%. The October 2025 launch of an AI agent suite, designed to significantly reduce incident response times, provides a product differentiator. This innovation is crucial for re-accelerating revenue from the current 4.7% as adoption increases, despite a recent downward revision in full-year guidance to 5% growth.

PD Has Strong Fundamentals

• Cash Yield: PagerDuty offers an impressive cash flow yield of 10.4%.
• Growing: Revenue growth of 7.0% over the last twelve months means that the cash pile is going to grow.
• Valuation Discount: PD stock is currently trading at 31% below its 3-month high, 43% below its 1-year high, and 57% below its 2-year high.

Below is a quick comparison of PD fundamentals with S&P medians.

*LTM: Last Twelve Months

But What About The Risk Involved?

While PD stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. Panduit fell nearly 65% during the Inflation Shock and about 49% through the Covid Pandemic. These aren’t minor pullbacks by any means. Even with strong fundamentals and tailwinds, big market upheavals can still lead to steep losses. It shows that no matter how solid a stock looks, risk is always there when sentiment shifts sharply. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, and outlook changes. Read PD Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

If you want to see more details, read Buy or Sell PD Stock.

Other Stocks Like PD

Not ready to act on PD? You could consider these alternatives:

1. Oracle (ORCL)
2. ServiceNow (NOW)
3. Coinbase Global (COIN)

We chose these stocks using the following criteria:

1. Greater than $2 Bil in market cap
2. Positive revenue growth
3. High free cash flow yield
4. Meaningful discount to 3M, 1Y, and 2Y highs

A portfolio that was built starting 12/31/2016 with stocks that fulfil the criteria above would have performed as follows:

• Average 6-month and 12-month forward returns of 25.7% and 57.9% respectively
• Win rate (percentage of picks returning positive) of >70% for both 6-month and 12-month periods

Portfolios Beat Stock Picking

Individual stocks are unpredictable. A smart portfolio keeps you invested, limits downside shocks, and provides upside exposure

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.