DBGI - Red-hot stock: Why did Digital Brands (DBGI) rise by 140%?
2024-02-14 07:56:15 ET
Very few stocks get a chance to rise by triple-digit percentages. So, a sleepy name like Digital Brands Group Inc. (NASDAQ:DBGI) making a 140% gain will attract attention.
Digital Brands brings together fashion brands and consumers through its retail and e-commerce platforms. The company offers a variety of apparel from different brands on a wholesale and direct-to-consumer basis.
For a while, investors have held a pessimistic outlook on the fashion stock . The stock has been holding to a floor price of below $3 as the latest gains fueled it to above $12. DBGI’s price was $6.81 at the time of this publication, suggesting a dying retail mania. There isn’t much to worry about for DBGI.
Like other growth stocks, Digital Brands isn’t profitable. However, revenues have been rising and loss declining. In a recent guidance update , Digital Brands reaffirmed its 2024 guidance and committed to no equity offerings. The company reiterated a $27-$30 (£21.6-£24) million revenue and up to $2.0 (£1.6) million EBITDA. The company also expects a free cash flow of between $6-$7 (£4.8-£5.6) million.
The latest guidance is favourable for DBGI as the company focuses on strengthening shareholders’ value. CEO Hil Davis also expressed the Digital Brand’s pursuit of strategic initiatives, notably the Sundry acquisition. Davis says the acquisition reduces operational costs by $1(£0.8) million and boosts revenues.
Conversely, the guidance is an overshoot for a company that reported $3.3(£2.64) million in Q3 2023. As Digital Brands looks inclined to achieve the target, the stock could experience buying interest.
Digital Brands corrects after a strong bullish surge
A stock chart shows DBGI under buyer control. The stock is correcting and is trading under volatile conditions. There are clear overbought conditions for the stock based on the RSI reading of 82.
Should you buy DBGI now?
While DBGI is bullish after the favourable stock market news, the ongoing correction could lower its price. In the short term, buying DBGI isn’t recommended, although a high social interest may trigger further rises. However, this stock might be attractive in the medium and longer term as the market digests the latest guidance.
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