Software developer GitLab (GTLB 13.28%) is seeing its stock "git" crushed after reporting strong earnings, but so-so guidance last night. Heading into the report, analysts forecast GitLab would earn $0.20 per share on sales of $239.3 million for fiscal Q3 2026. Management $0.26 per share in profit and sales of $244.4 million. Guidance, however, was barely in line with forecasts.
GitLab stock is down 17.2% through 10:05 a.m. ET.
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GitLab Q3 earnings
GitLab grew Q3 revenue 25% year over year, an unqualified success. The company's earnings was more nuanced. On the one hand, GitLab "beat earnings" -- non-GAAP earnings. The company's operating profit margin, though, was negative 5%, and when calculated according to generally accepted accounting principles (GAAP), GitLab didn't actually earn anything.
GitLab lost $0.05 per share.
"Engagement is growing across our platform," insisted CEO Bill Staples, while CFO James Shen highlighted the company's 25% revenue growth and free cash flow turning positive -- about $28.4 million.
NASDAQ: GTLB
Key Data Points
Is GitLab stock a sell?
Nevertheless, investors focused on guidance. GitLab guided for only $0.22 or $0.23 per share in Q4 earnings (Wall Street wants $0.23, period), with revenue of $251 million to $252 million. (Wall Street wants $251.9 million).
GitLab's barely promising to hit its targets in the current quarter, and for a purported growth stock, "barely" may not suffice.
The good news is that, after the stock's decline today, GitLab stock actually looks priced about right. Trailing free cash flow is $242 million, and the market cap is about $6.2 billion, yielding a price-to-free cash flow ratio of 25.5x. For a stock that just delivered 25% sales growth, that looks like a fair valuation to me.
After today's selling, I'm prepared to call GitLab stock a "buy."
