What happened

Shares of PagerDuty (PD 2.86%) were moving higher Friday after the software-as-a-service company got an analyst upgrade. As of 12:11 p.m. ET, the stock was up by 5.6%.

So what

PagerDuty specializes in observability and monitoring software that notifies businesses of outages and other connectivity issues. On Friday morning, Morgan Stanley analyst Sanjit Singh raised his rating on the tech stock from equal weight to overweight.

Singh said he'd been hesitant to rate the stock a buy since its 2019 IPO due to its valuation, but the company has proven it can grow revenue consistently, and he expects it will be able to sustain 20% revenue growth over the next few years. He also said the company's subscription model has allowed it to improve its cost structure and will help it deliver a "strong pivot to profitability."

Indeed, PagerDuty delivered strong results in its most recent quarterly report, and the stock has outperformed its software-as-a-service peers in recent months, a sign that Morgan Stanley isn't the only one who sees an opportunity here.

In the third quarter, the company beat estimates on the top and bottom lines. Revenue jumped by 31% year over year to $94.2 million, and it posted a surprise adjusted profit of $0.04 per share.

Now what

PagerDuty also recently won the AWS Regional Global Partner Award, strengthening its relationship with cloud infrastructure leader Amazon and supporting its long-term growth.

Trading at a price-to-sales ratio of 7, PagerDuty is still cheaper than most other software-as-a-service stocks, and the pivot to profitability should continue, as its adjusted operating margin jumped by 1,000 basis points and it's seeing strong growth with its highest-spending customers.

If those trends continue, the stock should keep moving higher.