GitLab: Buy It Low While You Still Can-Higher Prices Are Coming

There was absolutely nothing wrong with GitLab’s (NASDAQ: GTLB) Q1 earnings report and guidance. Nothing that is, except a wee bit of tepidness relative to analysts' relatively high bar. The sticking point, the cause for the 12% post-release price plunge, is that the guidance for Q2 revenue and the full year is slightly below the forecasts. 

By slight, that means the top end of the range aligns with the consensus, opening the door for underperformance as the year progresses.

However, that slight tepidness is offset by robust growth, margin expansion, better-than-expected earnings, and strong guidance that forecasts these trends to continue. The takeaway is that GTLB is a screaming buy with its shares trading near the bottom of a two-year range, price points unlikely to last long. 

GitLab Performed Well in Q1: Guidance Is Solid for F2026

GitLab had a solid quarter in Q1, growing revenue by 26.8% to sustain its high-double-digit growth rate for another quarter. The growth outpaced the consensus estimate by 65 basis points, driven by strength in client growth and penetration. Clients contributing more than $5,000 in Annual Recurring Revenue (ARR) grew by 13%, led by a 26% increase in clients contributing more than $100,000. Regarding penetration, the net retention rate remains robust. At 122%, it is slower than last year but reflects substantial growth in revenue from existing clients, nearing 25%. 

The margin news is also robust. The company expanded its adjusted operating margin, resulting in record cash flow and free cash flow. The net result is $0.17 in adjusted EPS, 1300 basis points ahead of MarketBeat’s reported consensus, and the strength is expected to carry through the end of the year. 

The guidance is mixed with revenue forecasted at the low end of the analysts' range, but margin strength offsets it. The forecast for Q2 and FY 2026 adjusted EPS has a low-end estimate that is above the consensus, which is likely a cautious estimate.

Not only are clients growing and penetration deepening, but contract backlogs are also increasing, with the remaining performance obligation up 40%, supporting a 24% year-over-year revenue growth forecast. Regardless of the comparison to the analysts' consensus, a 24% YOY revenue growth and substantial margin are a good forecast for any tech or growth stock. 

A Mixed Reaction From Analysts Aids GitLab’s Price Plunge

The initial analysts’ response is mixed, with two price target reductions and one price target increase tracked by MarketBeat within the first few hours of the release. The takeaway for investors is that the price targets are narrowing the range around the consensus, which forecasted a 45% price increase before the release. The net result is a potential for a 65% gain or more from the critical support levels. 

The balance sheet is critical to this stock. It is a fortress, enabling self-funded growth with zero debt and robust financial leverage. The company’s total liabilities are less than one times its equity and approximately two times its cash, providing ample flexibility and a growing potential for capital returns. 

The price action is sketchy and could lead the market to multi-year lows below $38. However, such a move would present an attractive entry due to the company’s financial health, cash flow, and growth outlook. It is forecasted to sustain a solid double-digit pace through the middle of the next decade. The more likely scenario is that the market will step in to buy the dip.  

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The article "GitLab: Buy It Low While You Still Can—Higher Prices Are Coming" first appeared on MarketBeat.