GigaCloud technology (NASDAQ:GCT) operates a global business-to-business marketplace, connecting buyers and sellers for bulk and bulk products. Leveraging innovative technology and recent strategic acquisitions, such as Noble House, GigaCloud facilitates seamless transactions, enhances supply chain capabilities and aims to revolutionize the way businesses engage in cross-border trade.
Business has a short thesis against it. But once the third quarter results come back, I am fully convinced that the short thesis is wrong.
In short, GCT is priced at 5x forward EBITDA, with a clean balance sheet and a management team that has shown exceptional business acumen.
This stock is a buy.
In my previous one bullish analysis last month, before GCT’s earnings report came out and the short thesis still had some validity, I said,
GigaCloud Technology has been put under the spotlight of a lottery REPORT. While there are some oddities raised as part of the brief report on GigaCloud’s fundamental prospects, I find that there isn’t enough to make me return my bullish call on this stock.
Here I discuss what investors should take from the brief report and which aspects are encouraging but misleading.
And while the stock has rallied strongly since I wrote that analysis, I don’t want to change my call. In this case, I will get my performance since I first placed this stock as a buy.
Although, as you can see above since I wrote my last analysis, the stock has performed much better.
So let’s get to why I’m bullish on this stock.
GigaCloud Technologies operates a global B2B marketplace, connecting buyers and sellers for large and large products. By leveraging technology, GigaCloud facilitates seamless transactions and enhances supply chain capabilities.
In the near term, GigaCloud Technologies’ recent acquisitions of Noble House and Wondersign position the company to expand its scale, product diversity and supply chain capabilities. The acquisition of Noble House, a leading B2B furniture distributor, not only brings an extensive network of partners and suppliers, but also provides significant warehouse expansion and synergistic cost savings.
During earnings CALL, Iman Schrock, President of GigaCloud, stated, “Fisnike House will significantly strengthen our supply chain and expand our product offerings in innovation and diversity, essential for attracting new high-quality buyers and sellers in the B2B market .” This acquisition allows GigaCloud to enter new markets, including Canada and India, and strengthen its relationships with major retailers such as Amazon, Target and Walmart.
Additionally, the integration of Wondersign, a cloud-powered digital signage and catalog management innovator, is set to enhance GigaCloud’s presence in the physical retail sector. With a network of over 2,500 retail locations, the GIGA IQ suite aims to provide consumers with a streamlined experience, expanding GigaCloud’s reach beyond its traditional B2B focus. As Iman Schrock pointed out, “These integrations aim to further accelerate our momentum, offering customers more diverse ways to connect and transact, ultimately positioning us as a leader in the global B2B landscape.” GigaCloud’s proactive approach to expanding its operational capabilities and reaching a wider audience positions the company for sustainable growth and success in the near term.
While GigaCloud Technologies has experienced notable success and growth, the company faces key headwinds that could affect its trajectory, for example, note that GigaCloud is a small business with no significant moat to speak of and is facing much larger and well-resourced competitors.
Also, changes in geopolitical events could affect cross-border trade, which would be materially detrimental to GigaCloud’s short-term prospects.
With that context in mind, let’s delve into his finances.
Income growth rates require interpretation
GCT has only guided its consolidated growth rates for the fourth quarter. Clearly, the revenue growth for the fourth quarter is impressive. When asked on the call what the organic growth rates will be for the business, management stated that organic growth rates for Q4 2023 would be approximately 50% YoY.
However, this is clearly a massive leap, and this is clearly significant. When asked for more details management was evasive, noting that it would be difficult to parse which part is GigaCloud Technologies and which part will come from Noble House.
One way or another, when the dust has settled, the organic growth rates in this business are very strong.
GCT Stock Valuation — 5x EBITDA
During the earnings call, GCT management outlined how the acquisition of Noble House would dilute the company’s consolidated profitability going forward.
Therefore, I had to make some rough estimates of GCT’s operating rate EBITDA. Although, it must be said that management has not made this an easy task. Therefore, I have been forced to add a large margin of safety to my calculations.
Moreover, in my previous analysis I said,
[…] if I were to highlight one item to be tuned in to when GigaCloud reports its Q3 results in a few weeks […], would be the cash flow statement. Especially to keep an eye on his inventory figure.
As you can see in the chart below, GCT’s cash flow statement looks very clean with the inventory level moving slightly higher, as I would expect to see for a growing business.
Moving forward, this is my thought process when it comes to the future benefit of GCT. Consider GCT’s Q3 2023 results, below.
The business earned about $30 million in EBITDA in Q3 2023. This is clearly ahead of the previous quarter in Q2, which reported just under $25 million.
However, it now seems within reason that over time GCT could deliver around $120 million in EBITDA.
That leaves the stock priced at 5x EBITDA.
In closing, my full analysis of GigaCloud Technologies highlights a strong bullish sentiment for the stock, with a particular emphasis on its stellar growth rates and attractive valuation.
Despite facing a short thesis, recent third-quarter results have not only allayed concerns, but highlighted the company’s impressive trajectory. GigaCloud is currently priced at just 5x forward EBITDA, making it an undervalued asset in the market.
The growth rates, particularly the projected 50% year-over-year organic growth for Q4 2023, underscore the company’s ability to capture market share and fuel expansion. While management has been somewhat evasive about splitting growth between GigaCloud Technologies and recently acquired Noble House, overall organic growth rates remain extremely strong.
This stock is a buy.