Shares of GitLab (GTLB 0.47%) fell 26.4% in January 2022, according to data from S&P Global Market Intelligence. The provider of software development tools has now lost 30% of its value since its first day on the market, Oct. 14 of last year.
This stock is a victim of Wall Street's retreat from high-risk stocks, but GitLab is taking a more brutal pummeling than most growth stocks. The very recent market debut plays a large role in Wall Street's perception of outsize risk here, as investors and analysts alike need a few quarters' worth of properly reported operating results before pinning a solid market value on new stocks.
GitLab's unstable footing is underscored by a massive short-seller interest in the stock. Nearly 37% of the market float was on loan to bearish investors with a negative outlook as of Jan. 14.
The company is not entirely bereft of operating data. GitLab reported third-quarter results for fiscal year 2022 in early December, showing a 58% year-over-year revenue increase but profit margins deep in the red. The operating margin was a negative 49%, and bottom-line figures were printed in even deeper shades of crimson. It's understandable if risk-averse investors are staying far away from stocks like that in the current market. Even after January's dramatic correction, GitLab shares still trade at a lofty 40 times trailing sales with a market cap of $8.9 billion.
At the same time, growth investors with a generous level of risk tolerance might want to take a second look at GitLab during this downturn. The company may be small, but it addresses a massive global market, codifying the popular DevOps software development system in a single package. With an open-source methodology at heart and skyrocketing top-line sales, GitLab reminds me of Red Hat's history as a stand-alone company.
The combination of an open-source code base and a premium-priced bundle of extra features and support for enterprise customers is a proven winner. It remains to be seen how far GitLab can take that connection, but the Red Hat story certainly had a happy ending. I'll keep a close eye on GitLab and its stock from now on.