With its digitally-first narrative approach, the curated collection of luxury lifestyle brands Digital Brands Groups Inc. (DBGI) has continued meaningful growth. But despite being an impressive company in a hyper-growth mode, DBGI stock has been getting a severe beat down. The stock has been pushed down over 89% in the past six months and roughly 94% in twelve.
The company has so far been doing all the right things with continued all-time revenue records, successful acquisitions of brands with revenue, and a recent capital raise netting in $9.3 million in cash for it. The company is listed on Amazon as well and even accepts cryptocurrency as a form of payment. The latest includes quarterly earnings with humongous YOY improvement across all elements, from revenue to gross margin to a loss per share and upbeat guidance. While being severely beaten down, luckily, the latest earning report has the stock continuing a bullish trend.
On May 16, DBGI was trending in the green with gains of 4.18% prior to the earnings, which converted into 5.82% in the pre-market following the announcement. Thus, the stock was then trading at a value of $0.2635 apiece. The earlier session had it valued at a price of $0.2490.
Overview of DBGI
The company has a novel business model that has supported both organic and inorganic growth. Being a digitally native-first vertical brand, the company goes into the perils of sourcing its products directly from third-party manufacturers and selling directly to the end consumers while also controlling its own distribution. Its business model has led to continued repeat orders and cross-merchandising across its numerous brands. It also leverages all three channels of websites, wholesale and DBGI stores for its brand portfolio.
On top of it, DBGI’s M&A strategy has it offering DSTLD, Bailey 44, Harper & Jones, and Stateside brands with the next crown jewel being Sundry. Acquired in 2021, Harper & Jones AND Stateside have performed exceptionally well for the company so far. Early this year in January, the company entered into a definitive agreement for acquiring the women’s lifestyle brand Sundry. Sundry brings a strong position with $18.2 million generated in revenues in the first nine months of 2021 (an increase of 37.9% YOY) with a net income of $2.7 million (up 11.7% YOY). Expected to close in the ongoing quarter, the acquisition will add significant revenue and profit along with a popular brand name to DBGI’s portfolio.
The Latest Earnings of DBGI
On Monday, the digital-first lifestyles brands company came out with an earnings report for the first quarter of 2022. The quarterly sales surged by a huge 740% YOY to reach $3.4 million while the year-ago sales were $0.4 million.
A stark increase was also reported on the gross profit margin front as it grew by a vast 671% YOY to 42.9% in Q1 2022. Comparatively, the figure was negative 50.8% in the same period of the prior year. Improved gross margin across all of its brands was the driver behind the huge jump.
Despite including a non-cash expense of $3.0 million due to a change in the fair value of contingent liabilities ad amortization of loan discounts, the quarterly net loss per diluted share shrunk to 59 cents. This came down from $4.55 per diluted share in Q1 2021. The total net loss was $7.8 million in Q1 2022 against the year-ago’s $3.0 million.
Furthermore, the total operating expenses widened to roughly $7 million, while the loss of operation extended to $5.6 million in the quarter.
The company now expects to attain revenues of $37.5 million to $42.5 million for 2022. And this forecast is further stretched to revenues eclipsing the $50 million level post the acquisition of Sundry which is expected in the ongoing quarter.
Recent Capital Raise
Recently, the company raised over $9.3 million in an underwritten public offering in early May, which closed on May 10. With Alexander Capital, L.P., and Revere Securities, LLC by its side, the company sold 37,389,800 common stock shares at a price of $0.25 per share in the offering while an additional option for purchasing 5,608,470 shares was also granted.
Even after deducting the repayment of the promissory notes worth the principal amount of $3,068,750, the company will be left with enough proceeds to continue its acquisition shopping spree. To potentially become EBITDA positive by 2023, DBGI will most probably continue diversifying its portfolio of offerings by acquiring more EBITDA positive and revenue-generating brands as it has done so far under its consumer acquisition strategies and plans to do in the future as well.
Company & DBGI Stock Ratings
In a recent research report by Goldman Small Cap Research, on DBGI, Rob Goldman called the company vastly undervalued but set to become one of the leading and fast-growing companies in its industry. The company’s sales grew by 44% from 2020 to 2021 and by a soaring 740% from Q1 2021 to Q1 2022 as per the latest. But despite this, the stock has a price/sales ratio of just 0.5x on projected sales for 2022. According to the report, sales of the company are expected to reach $52 million in 2022 and a staggering $87 million in 2023 from just $7.5 million in 2021. The report also forecast an operating profit of $2 million for 2023 along with annual EBITDA profitability, while EBITDA profit is anticipated to start in the ending quarter of 2022.
Additionally, the report gave a 12-month price target of $7 to DBGI due to its higher sales growth and potential for future M&A. The report also suggested a further increase in the target price following the execution of more deals by the company.
The stock and company projections in the report were even supported by a later article published in a digital journal. And DBGI has even been marked as one of the best penny stocks under $1 to buy for May 2022.
Conclusion
With a bullish rating, continued growth, and expansion in both its organic and inorganic sales, DBGI is expected to become EBITDA positive by 2023. While the stock has been severely beaten down as of late, despite the continued growth and development shown by the company, experts believe it to reach the $7 mark in the upcoming twelve months. The company is expected to emerge as the fastest-growing company in the industry and continue growing owing to its novel business model and its M&A strategy.
