Digital Brands Group, Inc. (NASDAQ: DBGI) stock ripped higher after reporting a 766% surge in E-commerce revenues during January and February of this year. That comparative increase is more than indicating that its digitally-focused sales model is working; it's also a signal that DBGI is in hyper-growth mode. In fact, while those two-month totals pounced their 2021 three-month comparable, the revenue generated in March will add extra distance from last year's precedent. Thus, while investors may be taking profits after a more than 91% surge since Friday, one thing is clear- DBGI's update is not a sell-the-news event.

On the contrary, it's likely a buy signal. After all, not many companies in the apparel sector are posting even single-digit percentage increases. Most are posting flat growth and even declines compared to last year. Not only that, guidance from several of the biggest names in the space has been tapered to reflect market pressures of inflation, which affects margins and consumers' buying power. However, DBGI is proving that being a trendsetter has its advantages. They expect significant growth, EBIDTA positive revenues, and an acceleration of an acquisition strategy that will add potentially positive net income to the bottom line.

Guidance suggests that EBIDTA positive status could happen as early as the end of this quarter. And with the company on the eve of closing a second major acquisition of Sundry in the coming days, reaching net income could happen by the end of this year. Hence, while taking profits is never wrong, following the herd in tandem after excellent news may result in two things. First, significant dollars may be left on the table. And second, the same investors selling may find themselves chasing the stock higher with several announcements expected in the coming days and weeks. Indeed, being short the stock may be an unwise strategy in the face of those expected updates.

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Acquisitions and Peer Multiples Suggest Gains To Come

Keep in mind soaring revenues aren't the only thing attractive about DBGI. Its share price is too. In fact, surging revenues, having only 12.9 million O/S, an aggressive and accretive acquisition campaign, and peer multiples of at least 3X revenues make DBGI stock quite attractive. Totaling even where the company is today justifies a share price closer to $5.00 compared to where it sits now. And that's not taking into account the bullish guidance, which, when all tolled, could set DBGI stock on a trajectory toward 52-week highs of $8.80. And that's at a minimum. Why? Because DBGI is about to reach a milestone that many of its high-priced competitors aren't close to achieving- an EBIDTA positive status. 

Moreover, that's not a long-term expectation; it's likely to happen this quarter, which means a significant update could hit the wires in less than 25 days. If so, DBGI's spike over the past two trading days may be a precursor of what can happen after they close the Sundry deal. For sure, its 1X price/sales multiple could see a significant boost.

Notably, there's no shortage of examples suggesting that DBGI, which is better positioned than most, can earn that raise. Warby Parker (NASDAQ: WRBY) currently has a solid $2.9 billion market cap, and another industry player, Allbirds (NASDAQ: BIRD), is posting a roughly $930 million valuation. But the market caps don't tell the whole story; other metrics present a bullish case for DBGI. Let's lay it out.

Based on a price/sales perspective and year-end revenue expectations, WRBY holds a roughly 5.3X multiple and BIRD a 3.4X. Good for them. But, it's also potentially excellent news for DBGI, especially with DBGI much closer to becoming a profitable company and with revenue-generating momentum at its back. Thus, it makes little sense to see DBGI trading at a price/sales multiple of less than 1X. Frankly, it makes no sense. Still, markets are rarely perfect when it comes to valuations. And in DBGI's case, that imperfection exposes a massive near and long-term investment opportunity.

Acquisitions Imminent

It's an opportunity too big to ignore, supported by the fact that DBGI's growth isn't slowing; it's accelerating it. After purchasing Stateside in August last year, DBGI is about to close its acquisition of Sundry, a "coastal casual" brand that posted $18.2 million in revenues during the first nine months of 2021, a 37.9% increase over the same period in 2020. More importantly, that transformative acquisition is more than a revenue-generating powerhouse; it also delivers significant bottom-line growth by adding to other EBIDTA positive acquisitions that contribute to its bottom line. Sundry takes things a step further, having generated a net income of $2.7 during those same first nine months of 2021, an 11.7% increase over the same period in 2020. By the way, expectations are for all portfolio brands to perform appreciably better in 2022.

Also, once Sundry is officially added to the books, 2022 revenue estimates could jump from a midpoint of $39 million to over $60 million. Better still, DBGI has guided for additional acquisitions to occur during the year. And with DBGI habitually delivering its promises, trust DBGI guidance. Hence, current prices for longer-term shareholders are insulting. For new investors, though, they are enticing.

Here's more good news. DBGI has kept dilution to a minimum despite building its impressive revenue-generating arsenal. To close deals, they have used traditional debt terms to maintain a uniquely low share count of about 12.9 million. Yes, there is a convertible note on the books. But, even if fully converted into shares at its term price, DBGI would still have just shy of 16 million shares in the float. So, any suggestions made that DBGI is vulnerable to a convertible debt time-bomb are incorrect.

Growth Despite Challenging Markets

In addition, DBGI's impressive capital structure supports the thesis for its stock to trade appreciably higher. Remember, since its acquisitions are all EBIDTA positive, they can support the debt terms DBGI made. Thus, by not tapping into treasury shares to close deals, the low share count could help fuel a rally on a revenue multiple basis. 

Then once shares are more appropriately valued, DBGI could potentially sell some equity, eliminate all debt, and, assuming additional acquisitions in 2022, become a more than $100 million company and still have less than 20 million shares outstanding. That could happen if shares reached only the midpoint from their highs. But since DBGI is better positioned today than at any time in its history, re-claiming its 52-week high of $8.80 could make potential balance-sheet enhancements more accretive. Thus, with several well-performing brand assets now contributing to the revenue mix, becoming debt-free and maintaining its low share count could happen faster than many think.

That would fit the pattern of success. DBGI's revenue-generating momentum goes back to Q3 when they recorded a triple-digit percentage increase in revenues to $2.2 million. Keep in mind, though, that jump in income was supported by only a few months of revenue contributions from Stateside and Harper & Jones, based on the timing of those closings. In 2022, DBGI will recognize a full year of revenues and additional streams from Sundry. As noted, more acquisitions could add appreciably to those totals.

Already, though, DBGI expects revenues to reach between $37.5 million and $42.5 million during FY 2022, a more than 350% increase over its 2021 projections. Not only that, DBGI is indicating positive EBITDA for the new year as well, leveraging the power inherent to its shared services platform. Keep this in mind, too. The Sundry acquisition is expected to add at least $20 million to its expected 2022 revenues. In 2023, that number should be higher as DBGI would recognize an entire year of contributions.

Compelling Brands Fuel 2022 Growth

By the way, the brands mentioned account for only part of an impressive brand portfolio. Other brands, including Bailey 44 and DSTLD, add considerably more firepower. In 2021 DBGI reported its Bailey 44 brand saw a 379% surge and DSTLD a 52% jump in revenues, which resulted from an aggressive marketing campaign into the year-end sales season. The excellent news there is that DBGI spent only a fraction of its $500,000 budget, about $30,000, to drive those increases. Thus, the ROI from the campaigns is more than impressive. They also show that its message reaches the right audience and markets effectively.

Better still, by leveraging the strengths of its shared services platform, revenues are falling faster toward the bottom line. DBGI said its gross profit margin increased 96% year over year to 55.9%. That comes as the company realizes the benefits inherent to its platform that adds efficiencies and cost savings. Still, while the margins are hefty at roughly 56%, DBGI thinks they'll get even more potent.

Of course, that's excellent news from an investor's perspective. And with its Bailey 44, DSTLD, Stateside, Harper & Jones, and soon, Sundry, contributing to a growing revenue stream, the even better news is that net income could be in play for 2022. Moreover, as demand for its styles leads to increased "closet share," DBGI is getting closer to clothing its clients head-to-toe with forward-thinking fashions, inspired styling, responsible manufacturing processes, and comfortable wearability. That helps, too.

Indeed, the results of DBGI's work show. Revenues went from doubling quarter over quarter to posting a 766% increase in only the first two months of Q1/2022 on a comparable basis. To those already following DBGI, that's not surprising. Excellent products generally result in surging revenues. However, what is surprising is that DBGI stock is not joining that lead. Using just about any valuation metric, DBGI shares are appreciably undervalued. And even more so from a forward-looking perspective, where guidance puts its price-sales multiple at less than 1X revenues.

Clearly, there's a disconnect. Still, as is always the case, in the long run, fundamentals rule the day. And with DBGI better positioned now for growth than any time in history, having a disconnect is not necessarily bad news for investors. While frustrating, it's an opportunity exposed 

Don't Ignore The Obvious

And it's an opportunity that may be better seized sooner than later. In fact, with an impressive capital structure and no threat of a toxic conversion, shares are priced for rapid appreciation, with the likelihood of re-claiming 52-week highs in play.

The total package supports that assumption. Surging revenues, portfolio appreciation, increasing margins, and an acquisition strategy that could put $100 million in income into play this year are also contributing factors supporting the value proposition. Still, it's the sum of its parts exposing a valuation gap too big to ignore. 

And while markets are volatile, they don't erase the facts- Digital Brands Group is growing fast, is on a transformative path to creating shareholder value, and has guided for much more to come. Thus, exploiting DBGI share price weakness may be more than fashionable; it's also timely.

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