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Friday, Goldman Sachs reiterated its Neutral rating on PagerDuty stock (NYSE:PD) with a price target of $16.00. The reaffirmation follows PagerDuty’s first-quarter fiscal year 2026 results, which led to a 2% drop in after-hours trading. According to InvestingPro analysis, PagerDuty appears slightly undervalued at current levels, with the stock trading near its 52-week low of $14.29. The company reported annual recurring revenue (ARR) that fell short of consensus estimates by 1.2% and reduced its fiscal year 2026 revenue guidance by 1.5%.
PagerDuty experienced a deceleration in net revenue retention (NRR) to 104%, compared to 106% and 107% in the previous two quarters. Despite these challenges, InvestingPro data shows the company maintains impressive gross profit margins of 83% and a healthy current ratio of 1.93, indicating strong operational efficiency. This slowdown was attributed to higher churn rates in both Commercial and Enterprise segments, as well as challenges with go-to-market (GTM) execution and specific issues such as customer mergers and acquisitions leading to seat erosion.
Despite these setbacks, PagerDuty confirmed its ongoing strategy of targeting larger enterprise customers and expects improvements in GTM execution as sales representatives gain more experience throughout the fiscal year. The company also highlighted a record number of paid net customer additions since the second quarter of fiscal year 2023, with 133 new customers compared to 64 in the fourth quarter of fiscal year 2025. Moreover, PagerDuty saw expansion with 25% of its Enterprise customers. InvestingPro subscribers can access 8 additional key insights about PagerDuty’s growth potential and financial health metrics through the comprehensive Pro Research Report.
Goldman Sachs analysts noted PagerDuty’s continued progress toward profitability, with operating margin (OpM) and free cash flow margin (FCFM) surpassing consensus by 460 basis points and 260 basis points, respectively. The company aims to reach GAAP profitability by fiscal year 2027. However, Goldman Sachs anticipates that revenue growth may be moderate in the near term until there are clear indicators of sustained success in multi-product offerings and consistent performance with larger clients.
In conclusion, while recognizing PagerDuty’s ability to improve profitability, Goldman Sachs believes the current risk-reward profile is balanced, given the company’s next twelve months Rule-of (Revenue Growth + FCFM) at approximately 30. InvestingPro analysis reveals the company holds more cash than debt on its balance sheet and analysts expect profitability this year, with EPS forecasts of $0.94 for FY2026.
In other recent news, PagerDuty reported its Q1 2025 earnings, which exceeded expectations. The company achieved an earnings per share (EPS) of $0.24, surpassing the forecast of $0.19, and revenue slightly exceeded projections at $119.8 million. Despite these results, JPMorgan analyst Pinjalim Bora revised the price target for PagerDuty’s stock from $21.00 to $18.00, maintaining an Underweight rating due to subdued first-quarter results and deceleration in forward-looking metrics. The company is currently transitioning its sales strategy to focus more on enterprise sales, which has affected its revenue projections for the year.
PagerDuty’s Q1 performance was marked by an 8% year-over-year revenue increase to $120 million, along with a high gross margin of 86% and operating income of $24 million. The company also reported strong cash flow from operations at $31 million, reflecting operational efficiency. PagerDuty’s full-year revenue guidance remains optimistic, with expectations between $493 million and $499 million, indicating a growth rate of 5-7%. The company is also emphasizing its new AI product launches and strategic partnerships as part of its growth strategy.
Analyst Bora noted that while PagerDuty’s innovation is promising, there is no significant uptick in growth trajectory expected in the near term due to ongoing adjustments in sales strategy and the macroeconomic environment. The company is hopeful that changes in its sales strategy will lead to improved bookings and revenue in the following year. Meanwhile, PagerDuty continues to focus on monetizing AI products and enhancing enterprise engagement to achieve GAAP profitability.
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