GigaCloud Technology Inc. GCT has faced a steep decline of 54.2% in its stock price since April 2024, a stark contrast to the 5.4% growth of its industry and the 7.6% rise in the Zacks S&P 500 composite index. Among the competing companies, Revolve Group RVLV has experienced a 10.3% increase, while Beyond BYON has seen a dramatic 68.6% drop during the same timeframe.

As of the last trading session, GCT’s stock closed at $17.36, marking a 62% decrease from its 52-week high of $45.18. The stock's current trading position below its 50-day moving average reflects a prevailing bearish sentiment among investors.

6 Months Price Performance

< Image Source: Zacks Investment Research

GCT’s Strong Growth Remains Underappreciated

GigaCloud boasts strong e-commerce potential, driven by its platform diversification and enhanced outreach to various manufacturers, resellers and global consumers. The company's strategic integration of a supplier-fulfilled retail model with research and development allows it to deliver an exceptional B2B selling and sourcing experience.

In response to increasing demand for large parcel goods, GCT has seen impressive growth in the GigaCloud Marketplace GMV, sales volume, and the number of buyers and sellers. Sales surged 103% year over year in the second quarter of 2024, with GMV rising 80.7%. Active buyers and third-party sellers grew 66.8% and 39.8% year over year, respectively.

Despite GCT’s strong second-quarter earnings and significant growth in GMV and active buyers, the company is struggling with bottom-line pressures. Higher ocean freight costs and geopolitical issues are weighing on its performance. The temporary surge in industry-wide freight rates during late April and May has squeezed profit margins, although rates began to ease in July.

Additionally, the ongoing U.S.-China trade war could further dampen GCT’s growth prospects, as increased tariffs and potential cost hikes may hinder its high growth potential in the U.S. market.

GCT’s Valuation Plummets

The sharp decline in GCT’s stock valuation presents a limited margin of safety for potential investors. Currently, the stock trades at a forward 12-month Price/Earnings ratio of 5.6X, significantly below the industry average of 34.65X.

Additionally, its trailing 12-month Enterprise Value/EBITDA ratio is 3.52X compared to the industry norm of 50.43X.

GCT’s Earnings Estimates Declining

One estimate for 2024 has been revised downward over the past 30 days versus no upward revision. Over the same period, the Zacks Consensus Estimate for 2024 earnings has declined 17.8%. For 2025 as well, one estimate moved north over the past 60 days versus no northward revision. The Zacks Consensus Estimate for 2025 earnings has declined 18.2% over the same time frame.

Recommendation: Sell

Despite a sharp decline in the past six months, GCT has only fallen 5% year to date and remains up by an impressive 45.6% over the past year. Investors who have held GCT for an extended period may consider locking in profits at this point, as the company's ongoing operational challenges and worsening earnings estimates present uncertain prospects, which could lead to a further decline in the stock's price. For potential investors, it may be wise to steer clear of GCT for the time being.

GCT currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Revolve Group, Inc. (RVLV) : Free Stock Analysis Report

GigaCloud Technology Inc. (GCT) : Free Stock Analysis Report

Beyond, Inc. (BYON) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research