Monday - CFRA has downgraded GitLab Inc (NASDAQ: GTLB) stock from Buy to Hold, with a new price target of $55, a decrease from the previous $76.
The revision reflects heightened downside risks due to a challenging economic environment that could impact the software vendor's performance.
The firm has also adjusted its earnings per share (EPS) forecasts for GitLab, reducing the fiscal year 2025 (FY 25) estimate from $0.25 to $0.24 and the FY 26 projection from $0.50 to $0.48.
This adjustment is based on expectations of a more difficult sales landscape for software vendors, influenced by high interest rates and geopolitical uncertainties.
CFRA notes that the industry is witnessing a trend of cost-consciousness around IT budgets, resulting in lower headcounts that affect seat-based subscription models. Additionally, sales cycles are extending due to increased scrutiny of deals.
Despite these challenges, CFRA acknowledges the long-term opportunities in the DevSecOps, cloud migration, and AI adoption spaces. However, persistent headwinds are anticipated to have an adverse effect on GitLab's future performance and outlook.
The price target adjustment to $55 is based on a price-to-sales (P/S) ratio of 12 times GitLab's estimated sales of $730 million in FY 25 (January), which now sits below the company's one-year average. This change is attributed to the anticipated lower market multiples and demand concerns.
InvestingPro Insights
Following CFRA's recent revision of GitLab Inc's (NASDAQ: GTLB) rating, real-time data from InvestingPro provides additional context for investors considering the company's financial health and market performance. With a market capitalization of $7.5 billion, GitLab's impressive gross profit margin stands at nearly 89.78% as of the last twelve months leading up to Q4 2024, indicating a strong ability to generate revenue over its cost of goods sold. However, the company is currently not profitable, with a negative P/E ratio of -21.21, and analysts have adjusted their earnings outlook downwards for the upcoming period.
InvestingPro Tips highlight that GitLab holds more cash than debt, suggesting a solid balance sheet, and liquid assets surpass short-term obligations, which may provide some financial stability in uncertain economic times. Additionally, the Relative Strength Index (RSI) suggests that the stock is in oversold territory, which some investors might interpret as a buying signal.
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