/zigman2/quotes/226807389/composite DBGI +0.60%
Nov 03, 2021 (AB Digital via COMTEX) -- Digital Brands Group, Inc. (NASDAQ: DBGI ) is proving many things. But one thing in particular- its stock tends to run furiously higher on news. In fact, tracking its press releases since its IPO, DBGI shares can run triple-digit-percentages higher intraday. Last month, after announcing robust increases in E-commerce sales, DBGI stock skyrocketed by over 119% before settling down about 25% higher on the day. Since then, it's held its gains, following the ebb and flow of the markets in a consolidation pattern. The excellent news for DBGI investors, though, is that another update could be imminent.
That assumption is based on historical reference and that as holiday sales kick into high gear, more E-commerce updates are likely. Throw in an S-1 filing that hints at additional planned acquisitions, and the remaining two months of 2021 could be exciting times for DBGI investors. In fact, after setting up its Amazon store, the company is better positioned today compared to where they were when it reported a 376% YoY surge in sales for its Bailey's 44 apparel brand. That's not all.
Its DSTLD brand is performing well, too. There, DBGI reported that its focus on digital advertising pushed revenues for that brand higher by more than 52% since October 10th of this year. In addition, its marketing program, initiated last month, increased DSTLD order volume by 24% and sparked a 76% increase in new customers. Perhaps the better news is that those results come after an $8,000 ad spend. According to DBGI, it plans to spend about $300,000 by the end of the year. That compares to ZERO from the year before. Further, if the results of an $8,000 spend are an indication, growth heading into the tail end of Q4 can be exponential.
By the way, Bailey 44's surge was generated from only $20,000 in digital ad spending. An additional $200,000 is expected to be spent by the end of 2021 to accelerate E-commerce sales for that brand. Thus, big news and potentially corresponding moves in share price could be in play.
Future Of Digital Commerce
Keep in mind, DBGI only became a public company during Q2 of this year. And from that IPO, DBGI is well-funded, and its brands are attracting the attention expected. Better still, DBGI benefits from being in its best position ever to maximize its opportunities and have brand-building momentum at their back.
In fact, the revenue-generating power from its recent acquisition of Stateside apparel should show in the current and coming financials. While investors sent the stock higher on the news, using a valuation metric from a.k.a. Brands recent IPO, DBGI stock would have been better suited to trade closer to its all-time highs near the $8.80 level. Still, disconnects create opportunities, and Stateside sales will be accretive to its valuation once investors get results. Assuming a $40 million run rate from combined assets and using the 5X multiple from a.k.a Brands, it wouldn't be a surprise to see DBGI stock trade north of $10.00.
Remember, while Stateside can contribute quite a bit, there is additional revenue-generating power from Bailey 44, DSTLD, and Harper & Jones. Thus, the 5X model now applied to its peer should put the DBGI share price appreciably higher. And once investors get a number to plug into the revenue box, it will be easy to produce a more appropriate valuation for the stock.
Know this, too. Compared to AKA, DBGI has far less debt as a percentage of income, faster-growing revenues, and an impressive capital structure that provides substantial room for growth while maintaining a relatively low number of shares outstanding. Even assuming dilution from its recent acquisition of Stateside of about 5M shares, DBGI would only have about 17 million shares in the market. AKA has about 127M shares outstanding.
Hence, using AKA as a peer comparison is more than relevant; it's bullish to the DBGI value proposition.
Faster Growth In DBGI Brand Portfolio
And here's the best news- DBGI is a company in motion. Since August, DBGI has noted that DSTLD inventories are building to meet a considerable increase in demand. Moreover, its Bailey 44 brand is following suit, experiencing robust increases in wholesale booking orders. In fact, DBGI provided the clues ahead of its E-commerce spike when it said in its quarterly update that Bailey 44 was nearing wholesale order levels that compare favorably to pre-COVID levels. That proved true. Now, with more revenue-generating firepower from Stateside added to the mix, past guidance may be a bit conservative.
Yes, there's more to like. In addition to posting higher revenues, DBGI expects to turn EBITDA positive in 2022. And with additional accretive acquisitions expected, the growth story is well intact. Thus, valuing DBGI today could quickly justify a valuation above the $8.00 level; forward-looking blue sky valuations could extend that gain past $11.00, again based on a 5X revenue multiple.
Hence, looking past the intrinsic value in the portfolio leaves too much money on the table. But, to be fair, that's not all bad news. For investors, it exposes opportunities. Therefore, taking advantage of an intrinsically undervalued DBGI may be more than a wise consideration at current levels; it's a timely one.
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