GTLB - GitLab: Not Cheap But Worth A Premium Valuation

2024-04-01 01:37:03 ET

Summary

• GitLab shares stumbled in the wake of very conservative guidance for the current fiscal year.
• The guidance belied very favorable trends in the sales environment, including a quarter of record bookings and several other significant sales milestones.
• The company's growth in margins and in free cash flow generation has been impressive.
• The company's AI initiative Duo has just been released, and a 3rd party analyst firm rated it as the most functional and broadest based offering of AI at this time.
• The company is offering a number of new SKUs, including agile planning, an Ultimate tier with enhanced security, and GitLab Dedicated.

Life after a stock price speed bump

There is a famous song-famous to me, anyway, with lyrics by Dorothy Fields and composed by Jimmy McHugh and which was the hit of a show, Blackbirds, first performed in 1928. The song is “ I Can’t Give You Anything But Love. ” It has become an American Standard and it has a certain timeless quality-it was recently performed by Lady Gaga . Why do I bring this up at the start of an article about GitLab? ( GTLB ) Part of the lyrics go, “Diamond bracelets, Woolworth’s doesn’t sell, baby.” (For those unfamiliar with retail history in this country, Woolworth’s was an American icon through the 1950’s offering items priced between $0.05- and $0.10.). And that is really a metaphor for looking at GitLab as an investment. An expensive diamond bracelet that can’t be procured, except at a premium price.

I last wrote about GitLab 9 months ago when I reviewed the company’s prospects through the lens of generative AI. I recommended buying the shares at that point, after the company’s fall from grace in the winter of 2023 when the company had hit a substantial sales speed bump, announcing layoffs, guiding growth far below what had been anticipated, and talking about a different environment for the company’s services. The shares have appreciated modestly over the last 9 months and are currently about 17% above the price at which I recommended them 9 months ago.

In that time, the company continued to grow at a decent, although no longer at an exceptional rate. Last quarter, revenues grew 33% year on year. . Full year revenue grew by 37%. The company is forecasting revenue growth this year of about 26%. That is now the current consensus ....

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