Is It Time To Revisit GitLab (GTLB) After The Sharp Share Price Pullback?

• If you are wondering whether GitLab's current share price reflects its real worth, you are not alone. This article is all about unpacking what the numbers suggest about value.
• GitLab shares last closed at US$24.03, after returns of an 18.7% decline over 7 days, a 33.9% decline over 30 days, a 33.6% decline year to date, and a 61.4% decline over the past year, with a 45.0% decline over 3 years.
• Recent coverage around GitLab has focused on its position within the software sector and how sentiment around growth oriented, subscription based platforms has shifted. This has put more attention on what investors are willing to pay for future cash flows. This context helps explain why price moves have been sharp at times, even without any single headline fully accounting for the swings.
• On our framework for under or overvaluation checks, GitLab currently scores a 4 out of 6. Next we will look at how different valuation approaches arrive at that result, before finishing with a way of assessing valuation that can often give a fuller picture than any single metric.

Find out why GitLab's -61.4% return over the last year is lagging behind its peers.

Approach 1: GitLab Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business might be worth by projecting its future cash flows and then discounting those back into today’s dollars.

For GitLab, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in $. The latest twelve month free cash flow is reported at about $241.5 million. Analysts provide detailed projections for the next several years, and Simply Wall St then extends those forecasts further out, resulting in an estimated free cash flow of $608.45 million in 2031, with additional extrapolated figures out to 2035.

When all those projected cash flows are discounted back to today, the DCF model arrives at an estimated intrinsic value of about $65.76 per share. Compared with the recent share price of $24.03, this implies GitLab trades at roughly a 63.5% discount to that DCF estimate. On this measure, the stock screens as materially undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests GitLab is undervalued by 63.5%. Track this in your watchlist or portfolio, or discover 56 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for GitLab.

Approach 2: GitLab Price vs Sales

For many software companies that are not focused on net profit yet, the P/S ratio is often a useful yardstick, because revenue tends to be more stable than earnings and less affected by accounting choices. Investors usually pay a higher or lower P/S depending on how they see a company’s growth potential and risk profile, so there is no single “right” number.

GitLab currently trades on a P/S of 4.46x. That sits above the wider Software industry average of 3.25x, but below the peer group average of 5.74x. Simply Wall St’s Fair Ratio for GitLab is 6.74x, which is the P/S level its model suggests based on factors such as earnings growth, margins, industry, market cap and risk indicators.

This Fair Ratio aims to be more tailored than a simple comparison with peers or the broad industry, because those groups can mix companies with very different growth outlooks, profitability and balance sheet strength. Against that Fair Ratio of 6.74x, GitLab’s current 4.46x P/S sits meaningfully lower, which indicates that the shares screen as undervalued on this metric.

Result: UNDERVALUED

P/S ratios tell one story, but what if the real opportunity lies elsewhere? Start investing in legacies, not executives. Discover our 22 top founder-led companies.

Upgrade Your Decision Making: Choose your GitLab Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These are simply your story about GitLab, written in numbers like your view of fair value, future revenue, earnings and margins, all linked together in one place on Simply Wall St's Community page.

A Narrative connects three things: what you think is happening with the business, how that flows through to a forecast, and what that implies for a fair value you can compare directly with the current share price to help you decide whether you see GitLab as closer to a buy, hold or sell.

Because Narratives on Simply Wall St are live and refresh when new earnings, news or forecasts arrive, your view is not something you set once and forget. It adjusts as the information set around GitLab changes.

For GitLab today, one Narrative on the platform pins fair value as high as about US$150 per share, while another comes in closer to US$34. This shows how two investors can look at the same company, apply different assumptions about AI competition, margins and growth, and land on very different conclusions about what the shares are worth.

Do you think there's more to the story for GitLab? Head over to our Community to see what others are saying!

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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