As of Friday morning before market open, for the most part stocks weren't having a bad week. As always there were exceptions, however, and one of the unfortunate outliers was software development solutions provider GitLab (GTLB +2.67%).
On the back of a quarterly earnings report that disappointed the market, plus subsequent analyst price target cuts and even a recommendation downgrade, the company's share price sagged. As of early Friday morning, the stock had declined by more than 10% week to date, according to data compiled by S&P Global Market Intelligence.
A forgettable first quarter?
This, despite the fact that GitLab actually posted healthy growth rates in its first quarter. Total revenue rose by almost 27% year over year to $214.5 million, while non-GAAP (adjusted) net income increased more than sixfold to $29.4 million. Both figures topped the average analyst estimates, although not spectacularly.
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Investors like to concentrate on their view of the road ahead, rather than the numbers behind, so it was GitLab's guidance that had a more profound effect on sentiment.
The company's outlook for its current (second) quarter is for $226 million to $227 million in revenue, filtering down into per-share earnings of $0.16 to $0.17. While the analyst earnings estimate falls within the company's range, that for revenue is just above management expectations.
NASDAQ: GTLB
Key Data Points
Goldman gets more bearish
And what was discouraging to investors was also dismaying to quite a few analysts tracking GitLab. A clutch of them reduced their price targets on the stock with one -- white-shoe investment bank Goldman Sachs -- even pulling the lever on a recommendation downgrade. Goldman's Kash Rangan now feels the stock is only a neutral, down from his previous buy, at a price target of $50 per share.
I feel investors and pundits alike are overreacting to the quarterly results. While GitLab's revenue growth is declining, it's still turning in very profitable results and it operates a useful service. I think GitLab is therefore worth a look as something of a bargain play in its niche.
