GitLab stock trades at a super cheap valuation despite generating solid growth and being deeply entrenched with its customer base, the Motley Fool analyst says / Photo: X / GitLab
Now may be the time to buy stock of GitLab, a mid-cap provider of software development tools, argues Motley Fool contributor Geoffrey Seiler. The shares have fallen more than 40% year to date and are now trading at what he calls “insanely low” valuations.
Details
Investors should take a closer look at GitLab, Seiler said. Since January 1, the shares have declined nearly 41% to $22.15 per share. In his view, the stock is too cheap to ignore.
The analyst points to the following metrics: GitLab shares are trading at a forward price/sales ratio of 3, which he describes as “insanely low.” Its forward enterprise value/sales ratio, meanwhile, stands at just 2. Such levels are typically associated with peers whose revenue is stagnant or declining, whereas GitLab is growing revenue by 15-20%, Seiler wrote. In fiscal 2026, ended January 31, the company reported revenue growth of 26% to $955.2 million. For fiscal 2027, the developer expects revenue of about $1.10-1.12 billion, implying growth of roughly 16%. The company itself is not satisfied with its guidance, explaining that its bookings growth rate has not scaled with revenue growth over the last three years.
Reasons for stock's slump
Investors are concerned that GitLab’s performance could slow due to the rise of competing solutions built on AI, according to the Motley Fool article.
Last week, UBS initiated coverage of the company’s stock with a “hold” rating. AI adoption remains a persistent overhang for the company, whose growth is expected to slow in the near term, analysts said. At the same time, they noted that they “didn't hear much appetite to leave GitLab.”
UBS is not alone in its cautious stance. On Monday, RBC Capital Markets downgraded the stock from “buy” to “hold” and cut its target price from $33 per share to $25 per share. Among the reasons cited were “limited near-term upside opportunities” in the AI era.
Guggenheim also downgraded GitLab shares from “buy” to “hold.” This came despite the company beating the bank’s revenue forecast for the past fiscal year – Guggenheim had expected growth of 19% – and noting GitLab’s very high customer retention rate, the Motley Fool article said.
Seiler considers these assessments unfair. Bearish projections regarding the impact of AI on GitLab’s business fail to account for the specifics of its customer base, he argues. The company primarily serves clients in non-tech and highly regulated industries, where security and compliance are critical. Among them GitLab names Southwest Airlines, Agoda, Nasdaq, and the British Geological Survey. As a result, much of GitLab’s business is on-premises rather than in the cloud, which significantly reduces the likelihood of AI disruption, the Motley Fool contributor wrote.
GitLab stock currently has 17 “hold” ratings from analysts versus 11 “buy” and two “sell.” The average target price is $32.10 per share, implying upside of nearly 45% versus the closing price on Tuesday.
