PagerDuty (NYSE: PD) Stock a Discounted Bounce Play

Cloud-based alert management platform PagerDuty, Inc. NYSE: PD stock has been chopping in a tightening range since getting pummeled on its Q2 2020 earnings release. The sell-the-news reaction caused shares to briefly underperform the benchmark S&P 500 index NYSEARCA: SPY. Markets have “muscle memory” and revert to the prior reaction to binary events until proven otherwise. The historical template has been to run up into earnings and sell-the-news. The template sticks until proven otherwise. PD should have been a pandemic benefactor, but the market has decided otherwise. Nimble traders can look to monetize the price template utilizing opportunistic pullback price levels to play the pre-earnings run-up or the post-earnings sell-the-news reaction.     

Q2 FY 2020 Earnings Release

On Sept. 2, 2020, PagerDuty released its fiscal second-quarter 2020 results for the quarter ending July 2020. The Company reported an earnings-per-share (EPS) loss of (-$0.04) excluding non-recurring items versus consensus analyst estimates for a loss of (-$0.07), a $0.03 beat. Revenues grew 25.7% year-over-year (YoY) to $50.71 million beating analyst estimates for $50.67 million. The Company achieved an 87% non-GAAP gross margin. The Company generated the 5^th sequential quarter of positive cash flow ($2 million). Overall retention rate was 95%. The Company ended the quarter with $602 million in cash after a $242 million convertible debt offering in June 2020 raising $242 million.

Conference Call Takeaways

PagerDuty CEO, Jennifer Tejada, detailed the pandemic landscape, “Digital transformation is accelerating, becoming an imperative for our customers as they shift to an ecommerce led business model.” Tejada stated, “We have emerged as the central aggregator for nearly all signals across the digital landscape from monitoring and observing security, logs, tickets, and even sentiment. PagerDuty is the first line of defense in protecting revenue.” She reiterated the PagerDuty platform validated by Q2 expansions from major brand name customers including Peloton NASDAQ: PTON, Nordstrom NYSE: JWN, DoorDash, One Medical and Coursera. Total customers grew by 11%, over 1,300 customers to close with 13,346 total customers. The Company offers over 370 integrations and “deep bench” of product partners. In August, PagerDuty expanded integrations with partners Zoom Video NASDAQ: ZM, Microsoft Teams and Slack NASDAQ: WORK. PagerDuty CFO, Howard Wilson, stated, “We’re optimistic about the tailwinds we’re seeing… particular bright spot in international with revenue growing 34% YoY, driven specifically by strength in EMEA.” Large customer with annual run rates (ARR) above $100,000 are growing 35% YoY.

The Halo

If you can’t beat’em, join’em is the theme with the collaboration with Microsoft Teams NASDAQ: MSFT announced on Sept. 22, 2020. PagerDuty extends its integration into the Teams platform. The deeper engagement further galvanizes the “halo” effect with the top player in the workflow management and collaboration segment.

Low Balled Guidance?

The Company provided in-line Q3 EPS guidance if (-$0.11) to (-$0.10) versus (-$0.09) analyst estimates and revenues of $52 to $53 million versus analyst estimates of $52.54 million. The Company provided in-line full-year 2021 EPS guidance of (-$0.30) to (-$0.27) versus (-$0.27) analyst estimates and revenues of $206 million to $211 million versus $208.21 million analyst estimates. The guidance considers the convertible debt offering.

 PD Opportunistic Pullback Levels

Using the rifle charts on the monthly and weekly time frames provides a broader perspective of the near-term since PD is still forming the monthly indicators but weekly are formed. The monthly rifle chart has formed its moving averages indicating a stalled uptrend with the monthly 5-period moving average (MA) at $29.40 and 15-period MA at $25.68. The monthly stochastic has yet to form. The weekly rifle chart is complete with all indicators with the 5-period MA at the $29.17 Fibonacci (fib) level. The monthly rifle chart formed market structure low (MSL) buy trigger above the $22.82 and the weekly MSL triggered above $19.21. The monthly rifle chart formed a market structure high (MSH) below $26.34 and the daily MSH trigger is at $29.69. The MSLs and MSHs actually create the channels where shares have been ping ponging around. The weekly stochastic has stalled for a mini pup above $29.69 or a channel tightening on the crossover down towards the $26.34 monthly MSH trigger. The template has been a run up into earnings scheduled for Dec. 3, 2020 post-market. Nimble traders can monitor opportunistic pullback levels at the $26.34 monthly MSH, $25.36 fib, $22.82 monthly MSL trigger/fib, and the $20.32 fib. The price dictates the trade. If the opportunistic pullback levels hit, then consider selling into the pre-earnings run up. If shares run up without an opportunistic pullback, then be ready for a (possible) sell-the-news reaction towards the pullback levels for exposure.