Digital Brands Group, Inc. (NASDAQ: DBGI) shares are doing what they should be doing- consolidating after an impressive run that has priced shares more than 30% higher since its IPO. And that consolidation is good news for investors wanting higher lows to trade from when DBGI closes its expected and likely imminent acquisition of Stateside apparel. Indeed, consolidation at these $5.20* levels is a decidedly bullish indicator. (* price at 10:30am est, 7/21/21)
For investors already in DBGI, they are learning about the volatility inherent to a low float, high-value brand portfolio company. And what they are finding out is there are generally not enough shares to meet surging demand on company news. In fact, its most recent update in early July sent shares soaring to $8.80 per share, establishing a new 52-week high.
The better news for investors, new and current, is that closing its Stateside deal can have an even more significant effect on creating shareholder interest and enthusiasm. After all, that brand would immediately deliver a new and substantial revenue stream to DBGI. It would also add to the expected $900,000 or more per quarter from Harper & Jones and anticipated revenues from Bailey 44 and DSTLD.
And here's where it gets more interesting from a valuation perspective. Factoring in industry revenue and EBITDA multiples from the apparel sector that value at nearly 10X and 12X, respectively, DBGI shares could be in for a massive and justified move higher once that deal closes. And while investors don't yet know Stateside numbers, assuming that it posts revenues similar to Harper & Jones, DBGI stock would deserve a valuation price closer to $9.00 per share. Of course, if they contribute more, look for double-digit share prices to hold.
The better news for DBGI and its investors is that this is not a pure acquisition story. DBGI already has several compelling brands in its portfolio preparing to have a resurgence in activity as the country emerges from pandemic-created headwinds.
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Powerful Brand Portfolio
In fact, DBGI said it expects revenues from Harper & Jones, Bailey 44, and DSTLD to all increase in the back half of 2021, supported by a comprehensive marketing campaign, integration into Amazon Marketplace. And, as noted, the acquisition of another revenue-generating asset, Stateside, would contribute as well.
One message that DBGI makes clear- Digital Brands Group is exponentially better positioned to take on its ambitious business plan as a post-IPO company. And by leveraging its strengthened balance sheet and improved capital structure to grow its brand portfolio, it can reach intended milestones sooner rather than later.
Notably, its new capital is already hard at work. Last month, DBGI announced that DSTLD inventories are building to support a considerable increase in demand, and its Bailey 44 products are seeing a significant acceleration of wholesale booking orders into the Fall. Better still, they noted that Bailey 44 is nearing wholesale order levels that compare to pre-COVID levels. Thus, with each brand preparing to contribute better revenues in the current and coming quarters, the share price trajectory should follow higher.
Moreover, it's essential to value that DBGI's digitally-focused sales model is designed to maximize every dollar of revenue earned. That means that every dollar coming in has substantially more impact than traditional apparel retailers with very slim operating margins. And DBGI's strict attention to online wholesale and retail trade is catching on in the sector.
Brick and mortar store, Macy's (NYSE: M), is substantially increasing its marketing budget to build its online presence, and Naked Brands (NASDAQ: NAKD) recently announced its divestiture of Bendon Ltd. to rid itself of the costs related to operating a retail store location. In essence, their initiatives support the model DBGI is already using, hoping to one day also control the sale from sourcing, manufacturing, delivery, and final sale. DBGI already does all of that.
The best part of it all is that DBGI is executing its strategy in the right market at the right time, has the capital to grow, and has the inherent ability to locate and purchase valuable companies to add to its growing brand portfolio. And the back half of this year may be the best time ever to show its marketing and brand muscle.
Retail Apparel Sales Expected To Spike In Q3 and Q4
After all, DBGI heads into the back half of 2021 well-capitalized to find and potentially acquire the socially conscious brands that can contribute accretively to its operations. And there are many to choose from, which could keep management busy as they advance an aggressive acquisition strategy.
Keep in mind, too, any acquisition will likely have an immediate impact on growth since DBGI is more about accelerating growth than creating entirely new brands. And its strategy to acquire brands on the move fits well with analysts expecting that the post-COVID retail environment will likely surge in the back half of this year. They also pay more respect to online sales, where the virus created a potential paradigm shift in consumer purchasing habits. DBGI has that part covered.
Moreover, sector analysts add that pent-up demand combined with stimulus dollars is setting up the markets to have one of its best seasonal periods ever. Signs point to consumers' frustration about big-box closings during the past 18 months and have them ready to spend money in the sector like never before.
And DBGI could benefit from the wholesale and retail market trade frenzy if that transpires as expected. And with DBGI being in a position to maximize current and emerging market opportunities, revenues could come in much higher than expected.
Factoring the sum of the parts, the rally in DBGI stock is justified. And its current consolidation holding those gains is also a powerful indicator of strength. Moreover, when DBGI puts out an update, investors appear by the masses to take advantage of a new value opportunity. That's a bullish sign as well. They may also come early for a reason.
Indeed, as history shows, cheap shares can be hard to come by when the company makes an announcement, especially with most being value-creating updates. And with only about 11 million shares outstanding, expect the same challenge going forward.
Still, with shares holding substantially higher lows, tighter hands are keeping a grip on the stock. So, the next time it trades 4X its entire float, it may not stop at $8.80. In fact, double-digit prices may be in style this fall for DBGI.
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