Today is Wednesday, November 27, 2019 and here’s your daily small cap valuation.
PagerDuty (NYSE: PD) is a small-cap stock that could have a lot of potential. But it’s hard to value smaller companies like this. Conventional valuation metrics like price-to-earnings (P/E) ratio, profit margin, and return on equity (ROE) may not be available for them.
To get a sense of PagerDuty’s true valuation, let’s compare it to its industry peers — and to itself one year ago. We’ll look at four small cap valuation metrics…
Price-to-Book Value (P/B) Ratio
PagerDuty’s price-to-book value (P/B) ratio of 6.492 is 14.60% lower than its industry average of 7.602. That’s good. A low P/B ratio indicates that the company has a solid balance sheet — and that based on its balance sheet, the stock is trading for unusually cheap.
Free Cash Flow Yield (FCF/Enterprise Value)
PagerDuty’s free cash flow yield (FCF/EV) is undefined. That’s not good. FCF/EV is a fraction, and an undefined value generally means that the firm has a zero or a negative number as its enterprise value. It could also indicate that the company has failed to report the data used to calculate its enterprise value. Either way, we have to fault it for this.
Earnings per Share (EPS) Growth
PagerDuty’s earnings per share (EPS) growth is undefined. That’s not good. This may indicate that the company has failed to report earnings data. We have to fault it for this.
Gross Margin Growth
PagerDuty has grown its gross margin by 0.98% in the last year. That’s good. Many young small caps are unprofitable, so net profit margin isn’t always a useful measure. But a growing gross margin means that the company’s operations are getting more and more profitable over time.
PagerDuty scored favorably on 2 of our 4 valuation metrics. With this in mind, we believe the stock is appropriately valued.
Editor’s Note: We’ve been keeping an eye on a set of small-cap stocks that are a better value than PagerDuty. These stocks have the potential for bigger gains — and they’re far less risky than the speculative small caps many investors gamble on. Enter your email below to learn more.