Why GitLab Stock Plummeted 24.8% Last Month and Has Kept Falling in March

GitLab (NASDAQ: GTLB) stock got hit with a precipitous sell-off in February. The company's share price sank 24.8% in the period's trading. The S&P 500 declined 0.9% over the stretch, and the Nasdaq Composite's level fell by 3.4%.

There wasn't any major business-specific news that pushed GitLab's valuation lower last month, but the stock fell in conjunction with a broader-market pivot away from software stocks. Some hotter-than-anticipated inflation data at the end of the month also dragged the company's share price lower.

Image source: Getty Images.

GitLab stock sank amid bearish software pivot and macro concerns

Bearish pressure for software stocks mounted in February as investors reacted to the possibility that advances in artificial-intelligence (AI) technologies could render many existing business models obsolete. Amid the more cautious outlook for software stocks, multiple investment firms lowered their one-year price target for GitLab.

GitLab stock also saw a pullback at the end of the month after the Bureau of Labor Statistics (BLS) published its producer-price-index (PPI) report for January. While economists had forecasted inflation of 0.3% for the period, the price index data actually wound up showing a 0.8% increase for the period.

Why GitLab stock has kept falling in March

GitLab published its fourth quarter results after the market closed on March 3 and posted sales and earnings that beat Wall Street's targets. The company reported a non-GAAP (adjusted) profit of $0.30 per share on sales of $260.4 million, topping the average analyst estimate's call for a per-share profit of $0.23 on sales of $252.22 million.

Despite the Q4 beats, the company's forward guidance wasn't enough to support gains for the stock. The company's share price is down 6.5% in the month so far.

For the current quarter, GitLab is guiding for sales to be between $253 million and $255 million. The average analyst estimate had called for the business to post sales of $256.69 million. The company expects adjusted earnings per share for the period to be between $0.20 and $0.21 -- roughly in line with the average Wall Street analyst estimate's target for adjusted earnings of $0.20 per share.

Looking ahead to the full-year period, management is targeting sales between $1.099 and $1.118 billion -- falling short of the average analyst estimate's call for revenue of $1.13 billion. Adjusted earnings for the year are projected to be between $0.76 and $0.80, which came in well below the average Wall Street target for earnings of $1.03 per share.

In addition to the weaker-than-expected forward guidance, GitLab stock has lost ground this month as investors reacted to geopolitical and macroeconomic factors. The U.S. and Israel's war with Iran has injected a new source of volatility into the market. BLS data showing that U.S. payroll figures fell by 92,000 in February when economists had only forecasted a reduction of 50,000 jobs has also added to pressures. Along with GitLab's softer-than-anticipated forward guidance, these dynamics have raised concerns about the company's near-term growth outlook.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends GitLab. The Motley Fool has a disclosure policy.