Yahoo Finance PagerDuty (NYSE:PD) Has Debt But No Earnings; Should You Worry?
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies PagerDuty, Inc. (NYSE:PD) makes use of debt. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for PagerDuty
How Much Debt Does PagerDuty Carry?
You can click the graphic below for the historical numbers, but it shows that as of July 2021 PagerDuty had US$280.2m of debt, an increase on US$211.0m, over one year. But on the other hand it also has US$546.8m in cash, leading to a US$266.7m net cash position.
How Strong Is PagerDuty's Balance Sheet?
We can see from the most recent balance sheet that PagerDuty had liabilities of US$179.2m falling due within a year, and liabilities of US$314.1m due beyond that. Offsetting these obligations, it had cash of US$546.8m as well as receivables valued at US$48.1m due within 12 months. So it can boast US$101.6m more liquid assets than total liabilities.
This surplus suggests that PagerDuty has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, PagerDuty boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine PagerDuty's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year PagerDuty wasn't profitable at an EBIT level, but managed to grow its revenue by 29%, to US$244m. With any luck the company will be able to grow its way to profitability.
So How Risky Is PagerDuty?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months PagerDuty lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$6.4m of cash and made a loss of US$95m. Given it only has net cash of US$266.7m, the company may need to raise more capital if it doesn't reach break-even soon. PagerDuty's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with PagerDuty , and understanding them should be part of your investment process.
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.
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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