GigaCloud Technology: Why I’m Still Buying Now (NASDAQ:GCT)

Investment Thesis

GigaCloud Technology (NASDAQ:GCT) is a misunderstood stock. The most research investors do on this name, is look at the share price and say, ”it’s up so much, therefore I missed the boat”.

Where I explain what GigaCloud Technology is. And why I’m bullish on this stock. That according to my estimates, Giga is priced at 9x its forward EBITDA, while growing at approximately 40% CAGR.

Even though I was clearly wrong in the past when I laid out my prior estimate:

I am inclined to believe $50 per share by summer 2025 is a fair target.

Rapid Recap

Back in December, I said, in a bullish article,

The business has a short thesis against it. But on the back of these Q3 results, I’m thoroughly convinced that the short thesis is misplaced.

In short, GCT is priced at 5x forward EBITDA, with a clean balance sheet, and a management team that has shown tremendous business acumen.

This stock is a buy.

In fact, I’ve been an unwavering bull of this name and have seen this stock increase more than 100% since I first recommended it. And yet, I’m still bullish.

Why GigaCloud Technology? Why Now?

GigaCloud Technology operates a global business-to-business marketplace, connecting buyers and sellers for big and bulky products.

GigaCloud is like a big online store where businesses from around the world can buy and sell products. It’s not just a regular online store; it’s a platform that helps with everything from finding products to making payments and handling shipping. This platform is specifically designed for businesses as a B-2-B.

GigaCloud has a network that makes it easy for sellers and buyers to trade with each other globally. Sellers, usually manufacturers in Asia, can use GigaCloud’s system to sell their products internationally without worrying about logistics. Buyers, often resellers in the U.S. and Europe, can purchase products at wholesale prices and sell them on other platforms.

GigaCloud makes money through various services. When a transaction happens on their platform, they earn a percentage commission based on the transaction value. They also charge fees for warehousing (storing products), last-mile delivery (delivering the product to the final destination), and ocean transportation (shipping products across oceans).

The success of their model is shown by the increasing number of sellers and buyers using their platform over the years.

Given this background, let’s now delve into its growth rates.

Organic Growth Rates of 40% CAGR

Many people have misunderstood GigaCloud’s guidance and only seen that its growth rates point to more than 70%, meaning that the business is dramatically accelerating its revenue growth rates. This is false.

Giga has recently made two acquisitions, with one acquisition, that of Noble House, being particularly significant, and a needle-moving revenue figure on its topline.

And yet, organically, Giga is in fact growing at a very rapid rate. I estimate that in 2024, GigaCloud will be on a path towards 40% CAGR.

Now, keep in mind this. H1 2024 GigaCloud is up against fairly easy comparable quarters in the prior year. Consequently, at least in the first half of 2024, GigaCloud will deliver very strong growth rates.

Furthermore, consider this aspect.

I’ve made the case, on numerous occasions, that you don’t want to fight the Street. You want to position yourself in companies where the sell-side is gushing over your company and increasing their revenue estimates.

Why? Because when things turn sour, as they will at some point, you want the sell-side to be caught flat-footed and defending your stock. The last thing you want is for the sell-side to be out there, putting out research that essentially spells out, that ”I told you” Giga was a bad company.

Investing is brutal. Investing is an odds game. I’m wrong 50% of the time. But I know that if I start my inflection investing process with the thought of how much am I’m likely to lose with GCT, after putting on that framework, everything falls into place. Particularly, if the stock is cheaply priced.

GCT Stock Valuation — 9x EBITDA

After the acquisition of Noble House and Wondersign Acquisitions, I estimate Giga will end Q4 2024 with approximately $130 million of cash and immaterial debt sums. However, I recognize that Noble House, the far bigger of the two acquisitions, is meaningfully unprofitable.

Therefore, GigaCloud won’t be as profitable going forward as it had been prior to this acquisition.

Nevertheless, given that the core platform was able to make $30 million of EBITDA back in Q3 2023, I believe that there’s a path for GigaCloud to make approximately $170 million of EBITDA at some point in 2024, as a forward run-rate.

This implies that GigaCloud is priced at 9x EBITDA, with while operating practically debt-free. A bargain, even now.

The Bottom Line

In conclusion, GigaCloud operates a global B2B marketplace for large products, and its strategic acquisitions, particularly Noble House, have contributed to robust organic growth rates estimated at 40% CAGR.

While acknowledging the challenges posed by Noble House’s profitability, GigaCloud’s core platform’s demonstrated ability to generate $30 million EBITDA in Q3 2023 suggests a promising path toward $170 million EBITDA in 2024. With GigaCloud currently priced at 9x EBITDA and operating nearly debt-free, I maintain my optimism, considering it an attractive investment opportunity. My target of $50 per share by summer 2025 reflects my confidence in GigaCloud’s continued success and potential for further growth in the market.