Digital Brands Group, Inc. ($DBGI) stock is massively undervalued. And Rob Goldman, lead analyst at Goldman Small Cap Research, agrees. Goldman set a price target of $7 for the stock – more than 10 times its current value. In fact, according to some of his pricing models, even that lofty target may be conservative, and with $DBGI continuing to accelerate revenue growth, he may be right.
Most valuable about analyst coverage is that they forecast using models that provide objective comparisons to sector peers. In DBGI’s case, share prices should already stand significantly higher. Indeed, Goldman’s $7 price target is justified when considering its projected sales growth in 2022, with revenues expected to explode potentially 7X higher following the imminent closing of its Sundry acquisition. Thus, current prices fail to scratch the surface of valuing a company in hypergrowth. But, like all market disconnects, this one, too, is likely to close sooner than later.
Compelling Evidence for $ DBGI’s Price Target
Goldman should know what he’s talking about, with his company leveraging more than two decades of investment research experience as a senior research analyst and mutual fund manager. Goldman also serves as the Director of Research for Marble Arch Research, Inc. Also, as a sell-side analyst, Goldman served as a senior member of Piper Jaffray’s Technology and Communications teams. Before that, he led Josephthal & Co.’s Emerging Growth Research Group in Washington. Beyond that, Goldman served as Chief Investment Officer of a boutique investment management firm, Blue and White Investment Management, where he managed both Small Cap Growth portfolios and The Blue and White Fund. Thus, investors may want to pay attention to more than Goldman’s forecast; they may also want to seize the DBGI investment opportunity.
Indeed, DBGI guidance supports higher prices. Prior L3T coverage has provided reasons for the bullish proposition, noting a ramp in sales at Bailey 44, DSTLD, Harper & Jones, Stateside, and additional sales expected from Sundry.
A Trajectory to Surpass Optimistic Expectations
The more excellent news for investors is that revenue-generating momentum appears to be well on the side of DBGI as they continue to make accretive deals. And that not only positions them to reach analysts’ ambitious $7 price target but better positioned than ever to breach its 52-week-high of $8.80.
That happening wouldn’t come as a surprise. Remember, current growth adds to an already impressive trend. As a matter of fact, the company’s sales in 2021 were 44% higher than in 2020 and came with a significant tailwind. Not only that, the guidance calls for 2022 sales to snowball from $7.6 million to upwards of $45 million. Sales could pass those levels, with potentially $52 million in the crosshairs following the company’s acquisition of Sundry.
There’s more good news. DBGI expects incomes to fall faster to its bottom line from its digitally native-first business model, with cost savings inherent to controlling its distribution, maximizing established supply lines from third-party manufacturers, and direct benefit from leveraging a direct-to-consumer sales model. The model sheds several layers of intermediary businesses that eat into profit margins. Hence, DBGI’s expectations to generate between $37.5 and $42.5 million in revenues are more than impressive; it could be enough to generate EBITDA positive results much faster than previously thought.
Indeed, doing away with redundancies in supply lines benefits DGBI’s profit margins substantially, especially compared to its industry peers. And when combining its business model with its targeted M&A strategy, DBGI is better positioned than at any time in history to justify a significantly higher valuation. That results from its ability to cross-sell and take advantage of a business model that allows fixed costs to decline as a percentage of revenue.
Looking Toward Exponential Growth in 2023
While Digital Brands’ forecasted stretch growth to $52 million in 2022 is undoubtedly impressive, that’s not all the company has under its belt. Looking further ahead, 2023 projections accounting for full-year contributions from all brand assets could send revenues surging toward $78 million and deliver EBITDA profit as early as 4Q22, with continued EBITDA profit in all of 2023. With these bullish projections well-modeled, the disconnect between Digital Brands’ share price and its assets presents more than an attractive investment proposition; it’s compelling.
All in all, the Digital Brands Group investment proposition may be too good to ignore. And with the company expected to post strong quarterly results later this month, investors probably won’t. Moreover, when Digital Brands does come up from being an under-the-radar opportunity, expect its share price to surge, backed by solid revenue growth, strengthening fundamentals, and an acquisition strategy intending to turn this small-cap apparel business into a revenue-generating juggernaut.
And that’s a design that could keep DBGI stock in fashion.
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