Is Now the Time to Buy Beaten-Up GitLab?

It's been a tough year for GitLab's (NASDAQ: GTLB) stock, and it didn't get any better following the company's fourth-quarter earnings report after the DevSecOps (development, security, and operations) platform operator issued conservative guidance. With the stock down about 60% over the past year, as of this writing, is now the time to scoop up shares, or should investors cut bait?

Let's take a closer look at its results and prospects to find out.

Conservative guidance sinks shares

Investors have pegged GitLab as a potential artificial intelligence (AI) loser despite consistent solid revenue growth, so when the company issued conservative guidance, its shares took a hit following its earnings announcement.

For its fiscal Q4, GitLab produced solid quarterly revenue growth, with revenue climbing 23% year over year to $260.4 million. That was well ahead of the company's forecast for revenue of between $251 million and $252 million. Subscription revenue climbed by 26% year over year to $234.3 million, while license revenue edged up by 1% to $26.1 million.

The company continues to see solid growth within its existing customer base, with dollar-based net retention of 118%. Meanwhile, enterprise customer growth remains solid. The number of customers with $100,000 or more in annual recurring revenue (ARR) rose by 18% to 1,456, while customers with $1 million in ARR jumped 26% to 155. It continues to see pressure in the mid-market, while its government business saw a partial recovery after the government shutdown.

Looking ahead, GitLab guided for full-year fiscal 2027 revenue between $1.099 billion and $1.118 billion, representing growth of 15% to 17%. That was below the analyst consensus for revenue of $1.12 billion, as compiled by FactSet. It is looking for EPS in the range of $0.76 and $0.80.

For fiscal Q1, it forecast revenue to be between $253 million and $255 million, representing approximately 18% growth at the midpoint. It guided for adjusted EPS of between $0.20 to $0.21.

Management is looking to try to reinvigorate growth by increasing its sales headcount and looking to bring in new customers. It will also offer more à la carte options for customers to help expand average revenue per user (ARPU) without forcing price-sensitive customers to upgrade to its Ultimate tier.

Meanwhile, the company's new Duo Agent Platform is still in the early stages of adoption. It expects most of these initiatives to have a greater impact in fiscal 2028.

Image source: Getty Images.

Is the stock a buy?

Given its shift to a hybrid seat-plus consumption pricing model (combining a fixed, recurring per-user fee with variable charges based on product usage) and the introduction of its Duo Agent Platform, which requires consumption credits, it's not surprising that GitLab issued conservative fiscal 2027 guidance. However, both of these initiatives have the potential to be long-term growth drivers. Meanwhile, with the stock already washed out, it makes sense for management to set a low bar to jump over going forward.

The stock's weak performance has brought it down to a price-to-sales multiple of just 3.7 based on fiscal 2027 (ending January 2027) analyst estimates, and excluding its net cash, its enterprise value-to-sales ratio is only about 2.8. Regardless of the issues the company is facing, that's an insanely cheap valuation. As such, any signs of a turnaround could see the stock skyrocket, while with its valuable platform, it remains a potential buyout candidate.

Geoffrey Seiler has positions in GitLab. The Motley Fool has positions in and recommends FactSet Research Systems and GitLab. The Motley Fool has a disclosure policy.