Although Digital Brands Group, Inc. (NasdaqGS: DBGI) stock is giving back part of its 76% June run, a consensus is building that this may be the wrong time for investors to take profits. In fact, while taking money off the table is usually not a bad strategy, there are times better suited for doing so. With a planned acquisition of Stateside expected in the coming weeks, maybe even days, now may not be the best time to sell DBGI.
In fact, assuming that the deal with Stateside apparel is consummated, DBGI has substantial room to run. Right off the bat, it will add an impressive new revenue stream to the more than $900,000 contribution expected from its Harper & Jones acquisition. In fact, shares could quickly return to their June 28th high of $7.50, representing a more than 66% gain from current levels. And that run would be supported by revenue growth.
Keep in mind, too, investors stepped up to the plate in June by exercising rights to purchase an additional 361,445 shares in the company at $4.15 per share. Obviously, they think the share price is going higher, and at the same time, added liquidity for DBGI to withstand some selling pressure.
Whatever the case, they ponied up roughly $1.5 million to enhance their positions. That purchase, by the way, officially closed the over-allotment portion of its IPO, removing near-term dilution concerns from a capital raise. And with only about 11 million shares outstanding, even if DBGI uses some treasury shares to purchase Stateside, its accretive nature would likely make up for the dilution.
Still, until the company makes an official announcement, consider the planned acquisition as speculative. With that said, however, DBGI management has yet to fail to deliver on its prior guidance, making this trade attractive ahead of the potential news. And give or take a few market bumps, DBGI's share price would likely settle substantially higher than current prices upon closing that deal.
Better still, there's more behind this growing company of brands.
Video Link: https://www.youtube.com/embed/5cQPP8jHNV4
Bullish Q1 And Strong Guidance
Indeed, CEO Hil Davis set a bullish tone when delivering his Q1 update. And while he acknowledged that the pandemic-related headwinds were strong in Q1, he expected that Q2 and the back half of the year will benefit from much improved operating conditions. Better still, he guided for revenues from Harper & Jones, Bailey 44, and DSTLD to all increase in the back half of 2021. Even better, had Harper & Jones revenues been included in its Q1 filing, more than $900,000 would have been added to its quarterly totals. Harper & Jones was acquired as part of the IPO.
Perhaps even better news is that DBGI is clearly operating as a "post-IPO" company by using its assets to grow its portfolio of brands sooner rather than later. In fact, according to the company, investors can expect DBGI to fuel its market growth through a comprehensive marketing campaign, integration into Amazon Marketplace, and, as noted, the acquisition of another revenue-generating asset, Stateside apparel.
Thus, DBGI is creating what it set out to do- build a portfolio of brands that can benefit from a streamlined digitally-focused sales model. And its pace of doing so is impressive.
In fact, leveraging its strengthened balance sheet, DBGI is indeed accelerating its pace of growth. In June, they announced that DSTLD inventories are building to support market demand, and its Bailey 44 products are experiencing a considerable acceleration in wholesale booking orders into the Fall. DBGI also noted that it's Bailey 44 brand is nearing wholesale order levels that compare to pre-COVID levels. That's bullish as well.
Moreover, if the company closes on its planned Stateside acquisition, due to its accretive nature, even its own bullish guidance could prove conservative. Remember, too, that through its digitally-focused sales strategy that revenue increases can be immediately impactful. Moreover, its business model is proving that DBGI may be tracking the "future of retail," evidenced by brick and mortar brands Macy's (NYSE: M) and Naked Brands (NASDAQ: NAKD) announcing their focus toward driving sales through online channels. Still, having an online presence doesn't equate to being digitally integrated through the entire manufacturing and sales channel. DBGI is.
And it's that advantage that does more than help drive revenues exponentially higher; it's a strategy that allows for streamlined acquisitions and cost-effective manufacturing, sales, and marketing.
The bottom line is that DBGI is doing the right things at the right time.
Taking The Initiative In 2021
Perhaps best of all, DBGI is already positioned to benefit from a business sector that could see one of the sharpest rallies in the markets. Pent-up demand combined with stimulus dollars has created an atmosphere for growth. Moreover, after closing its IPO, its revenue recognition of Harper & Jones, and taking advantage of its lean capital structure, DBGI is taking on the back half of 2021 in its best operating position ever. And if it closes on the Stateside deal, they get even stronger.
Best of all, investors are starting to realize that DBGI executes efficiently on its strategies, and more importantly, can get done what it sets out to do. Thus, while the planned acquisition of Stateside could add substantially to revenues, it likely won't be the last brand acquisition of the year. And that makes DBGI a compelling growth stock opportunity, whether it be at current levels or 52-week highs.
Still, the best play might be for investors to keep an eye out for news. If history is a guide, there should be some soon. Trading ahead of it could be beneficial.
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