Digital Brands Group, Inc. (NASDAQ: DBGI) is many things. An innovator, a brand development company, owner of a luxury lifestyle collection of digital-first brands, and now an acceptor of cryptocurrency. The last part may sound almost ordinary to many, but it's not. Despite the headlines, only a tiny fraction of retailers accept the digital currency. Those that do tend to attract a broader audience. And it's that larger market that DBGI is focusing on.
On Thursday, DBGI announced it will start accepting cryptocurrencies as a form of payment across all its brands starting in the middle of November. More specifically, they will leverage the Shopify (NYSE: SHOP) platform to enable its brands to accept digital money as a payment method that DBGI believes will continue to penetrate the retail sector. For DBGI, it's the next logical step. After all, they are a digitally-focused company proving that, by taking advantage of technology over muscle, it can create a mega-company that owns and markets multiple apparel properties. Recent acquisitions that added to an already impressive asset brand portfolio prove they are on the right track.
Moreover, recent IPO's show DBGI is spot-on in its assessment of the power of digital sales. Within the past month, a couple of big deals brought two Direct To Consumer companies public, including Solo Brands (NYSE: DTC) and AKA brands (NYSE: AKA), which like Digital Brands Group (NASDAQ: DBGI), are positioning themselves as digital-first brands.
Sector IPO's Expose Valuation Disconnect
The best part of the story, at least from a DBGI investor's perspective, is that the markets welcomed these IPO's with open arms. Solo Brands was priced at $17 and raised about $220 million before fees. AKA earned an $11 price and raised upwards of $110 million before paying its expenses. Maybe the better news is that both are trading above their offering price, showing that institutional investors ponied up the big bucks to bring them public and continue to find value at higher prices. Notably, DBGI is trading above its IPO price as well, pricing intraday on Thursday at $4.82. Since the start of October, DBGI stock is higher by about 45%.
Indeed, the bullish sentiment can be contagious. And with things generally happening in three's, there's a good chance that DBGI can ride the tailwind of the institutional interest given the two other companies mentioned. They should. In addition to accretive acquisitions since its IPO, DBGI has posted impressive growth across its board of brands.
Moreover, they keep getting stronger. Last month, DBGI added Stateside apparel to its portfolio and followed that deal offering revenue guidance between $37.5 million and $42.5 million for its current fiscal year. Now, with multiple brands showing tremendous E-commerce growth exemplified by an update last month showing a 376% surge in online revenues for Bailey 44 and a 52% spike for DSTLD, attracting new attention could come sooner rather than later.
If it does, the news should be excellent for DBGI investors. The AKA IPO provided about a 5X revenue multiple. The Solo multiple was also aggressive. But, using the 5X as a variable, current revenue expectations put a more appropriate valuation for DBGI stock near the $10.00 level. That represents a more than 105% increase from current levels. Keep in mind, DBGI stock does tend to run on news, touching $8.80 a share earlier this year. And with only about 15-17 million shares outstanding after its Stateside acquisition, when demand outstrips supply, Digital Brands stock can skyrocket.Thus, reaching those levels may not be too much of a stretch.
In fact, after announcing the launch of its Amazon store last week, shares soared by more than 119% intraday on massive volume. Although the stock settled with gains over 25% on the day, the run was one of several made after DBGI posted news indicating its growth trajectory is steepening.
History Repeats for DBGI Stock
And, that was again the case on Thursday. After announcing its acceptance of cryptocurrency through the Shopify platform, shares surged by 17% intraday to $4.82 and held those levels at press time. Maybe the better news is that analysts can now more easily do an apples-to-apples comparison between DBGI and other similarly positioned companies. If they take advantage of that opportunity, DBGI could be the benefactor, with its pace of growth likely to show substantially more acceleration than its competitors.
Indeed, the revenues are different, but the multiples provided can be similar at the end of the day. And with little debt, a low share count, and an S-1 indicating additional acquisitions may be near, the stage is well set for DBGI to generate and sustain serious share price traction. Even better, it's not all blue-sky expectations. DBGI can justify a higher share price based on real revenues, a solid balance sheet, and a plan that allows the company to continue to capitalize on opportunities through its scalable business model.
Remember, too, other companies are proving the sector out as well. Warby Parker (NYSE: WRBY) and Allbirds (NASDAQ: BIRD) are direct-to-consumer brands that raised over $500 million and $200 million, respectively, before their IPOs. In comparison, DBGI raised only $20 million ahead of its IPO. But, history can provide a means for DBGI to tap the markets again at appreciably higher levels if they need or want to.
Still, that may be an option but likely not necessary. All of its brands are performing well, and the company expects to become EBITDA positive in 2022. That goal is likely expedited by an aggressive marketing campaign that is already generating impressive results. As noted, Bailey 44 saw a 379% surge and DSTLD a 52% jump in revenues off of just a small percentage of the budgeted ad spend budget. To date, DBGI has spent only about $30,000 of a marketing budget of roughly $500,000. Hence, the results posted are indeed impressive. Moreover, if the results continue dollar to dollar, DBGI's total revenues may be in line to soar.
A Trendy DBGI Brand Portfolio
There's even better news for those just introduced to DBGI. They are a company in motion. And their momentum started back in August when DBGI noted that DSTLD inventories were building to meet a considerable increase in demand. Better still, its Bailey 44 brand is enjoying the same trend higher, experiencing robust increases in wholesale booking orders that DBGI said were approaching wholesale order levels that compare favorably to pre-COVID levels.
Moreover, those increases came with a tailwind. Now, with additional revenue-generating firepower from Stateside in the mix, the guidance toward $42.5 million may even prove to be conservative.
Fashionable In Green
Indeed, it's been a good two months to date for DBGI investors. But, the gains could be a prelude to better things to come. And with DTC and AKA brands showing that investors are putting digital apparel company stocks in fashion, a return to 52-week highs of $8.80 would be a more appropriate starting point to begin the new year. Further, DBGI can justify that price tag today. However, based on several CEO references to his S-1 filing, more revenue-generating assets may be on the way. If so, the $11.00 price tag, using a 5X multiple, may do more justice.
Hence, even after its 44% Oct-Nov jump, DBGI still presents a compelling investment opportunity based on intrinsic and inherent strengths. But, as noted, the value window for DBGI has a tendency to close quickly. Thus, doing some DD on this company and then taking action where the facts lead could generate healthy returns. Better still, from another perspective, investors would be in fashion as well.
Disclaimers: Level3Trading is responsible for the production and distribution of this content. Level3Trading is not operated by a licensed broker, a dealer, or a registered investment adviser. It should be expressly understood that under no circumstances does any information published herein represent a recommendation to buy or sell a security. Our reports/releases are a commercial advertisement and are for general information purposes ONLY. We are engaged in the business of marketing and advertising companies for monetary compensation. Never invest in any stock featured on our site or emails unless you can afford to lose your entire investment. The information made available by Level3Trading is not intended to be, nor does it constitute, investment advice or recommendations. The contributors may buy and sell securities before and after any particular article, report and publication. In no event shall Level3Trading be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or made available by Level3Trading, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information in this video, article, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. Level3Trading strongly urges you conduct a complete and independent investigation of the respective companies and consideration of all pertinent risks. Readers are advised to review SEC periodic reports: Forms 10-Q, 10K, Form 8-K, insider reports, Forms 3, 4, 5 Schedule 13D. For some content, Level3Trading, its authors, contributors, or its agents, may be compensated for preparing research, video graphics, and editorial content. As part of that content, readers, subscribers, and website viewers, are expected to read the full disclaimers and financial disclosures statement that can be found Level3trading.com/disclaimer.
The Private Securities Litigation Reform Act of 1995 provides investors a safe harbor in regard to forward-looking statements. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical fact may be forward looking statements. Forward looking statements are based on expectations, estimates, and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements in this action may be identified through use of words such as projects, foresee, expects, will, anticipates, estimates, believes, understands, or that by statements indicating certain actions & quote; may, could, or might occur. Understand there is no guarantee past performance will be indicative of future results.Investing in micro-cap and growth securities is highly speculative and carries an extremely high degree of risk. It is possible that an investors investment may be lost or impaired due to the speculative nature of the companies profiled.
Company Name: Hawk Point Media
Contact Person: Ken Kellis
City: Miami Beach
Country: United States