Digital Brands Group, Inc. (NASDAQ: DBGI, $DBGI) stock has had a rough ride of late. Then again, few stocks, especially those in the small-cap arena, have been spared from recent market carnage. And that has led to impressive companies, despite being in hypergrowth mode, getting a much more severe beatdown than deserved. Digital Brands Group is one of them.

In fact, other than weak markets, which also gave pricing leverage to lenders in a recent capital raise, $DBGI is doing the right things at the right time. They have set all-time revenue records, successfully acquired impressive revenue-generating brands, and completed a capital raise providing more than $9.3 million in cash after fees. While that's a trio of reasons to invest, the icing on the investment cake is that the company has provided some very bullish guidance, expecting revenues to reach between $37.5 million - $42.5 million this year. By the way, a stretch forecast was added indicating that post-acquisition of Sundry, revenues could eclipse the $50 million level.

That all begs the question- at roughly $0.25 a share after completing its capital raise at the same level, does $DBGI stock merit inclusion in a diversified growth stock portfolio? In a word- absolutely. And that's not an overzealous presumption. It's a conclusion based on a simple sum total of DBGI's parts that equates to a valuation disconnect between assets and share price that is too big to ignore.

Still, the decline isn't all bad. Investors, whether averaging in or taking a new position, could be getting rock-bottom prices in a company well into its mission to transform from an expected roughly $40 million company this year to potentially an EBIDTA-positive revenue-generating juggernaut by 2023.

Better Positioned Than Ever For Growth

Indeed, the pieces to make that happen are in place. And except for the share price decline, which exposes a compelling value opportunity, DBGI is doing all the right things to create shareholder value. Analysts agree, with one at Goldman Small Cap Research modeling for shares (pre-capital raise) to reach the $7 mark – more than 25X their current value.

And his calculations make perfect sense, accounting for a surge in expected revenues, applying a conservative peer multiple, the pace of growth, and the value provided by its planned acquisition of Sundry. Obviously, the more than 37.3 million shares added to the DBGI count effects the target on a per-share basis. However, the bullish proposition doesn't change, and a potentially massive increase in the PPS is still in play.

In fact, with a beefed-up balance sheet, the already bullish forecasts could get even better. Remember, DBGI has made no secrets of its intent to grow through accretive EBIDTA-positive acquisitions. Thus, once they close their definitive deal for Sundry, they will have more than just additional revenue-generating firepower; they will have the leverage to make other value-creating deals. 

Moreover, that additional balance sheet strength could be a means for DBGI to take advantage of opportunities priced lower today compared to only two months ago. In other words, weak markets took many other excellent stocks lower, and those unable to raise capital could find themselves in need of a partner or be attractive to a suitor. If that's the case, and it likely is based on industry headlines, DBGI looks ideally positioned to capitalize on near-term opportunities. And if share price is a concern, know this- fundamentals should help correct that gap. Until then, shares appear quite a bargain.

Don't forget the fact that acquisitions could supercharge a company already setting performance records. Moreover, its record-setting revenues are helped by a digitally-focused sales model that keeps margins higher than typical industry levels. Thus, despite inflation, which can affect the pace at which revenues fall to the bottom line, it's good to know that the benefits from DBGI controlling processes from cloth to market to cash register is an advantage that strengthens not only its dollars earned but also the investment proposition.

That means the revenues from DBGI's announced ramp in sales at Bailey 44, DSTLD, Harper & Jones, Stateside, and those expected from Sundry are more powerful to getting DBGI closer to, or reaching, EBIDTA sooner than later.

Optimistic Expectations Expose Valuation Gap

It's not a stretch to say that if markets hadn't been taking it on the chin for the past three months, DBGI shares would likely be appreciably higher. Why? Because its most recent quarterly report showed that its revenue-generating momentum is strengthening. Numbers were so good that shares were reacting like they should have, trending higher with its 52-week high in its crosshairs. That target was justified. And while after accounting for recent dilution, that $8.80 target might not be the first reached using a revenue/share multiple, the O/S count still supports a move toward the $3.00 level, effectively putting a more than 1100% into play.

Of course, DBGI needs to do its part. And it appears as though they are. Despite unprecedented market conditions last year, DBGI's sales in 2021 were 44% higher than in 2020 and, more importantly from an investor's perspective, came with a significant tailwind. Not only that, that tailwind is blowing behind some very bullish guidance, with, as noted, a stretch revenue target of $52 million in the sights following the company's planned acquisition of Sundry. That deal, by the way, is said to be imminent, and trading ahead of the actual closing may be a wise and timely consideration. With history a guide, DBGI shares have a way of surging on positive news. And in this case history may indeed repeat.

Actually, it should. Once closed, DBGI will be in its best position ever to drive shareholder value higher and faster than ever before. Even with roughly 55 million shares O/S if the over-allotment options are exercised, it's still a relatively small float compared to sector peers. Hence, when DBGI prices earn back their more appropriate value, its treasury provides significant purchasing power for additional revenue-generating assets.

Exponential Growth Expected In 2022

And more acquisitions could happen faster than many think. It's a well-defined part of their strategy, and those following DBGI know that they follow through on that intent. Thus, knowing that shares are priced for appreciation makes them attractive from investor's point of view and as currency once fundamentals fill the valuation gap. Here's something else to consider. A bullish move is often triggered after a capital raise is completed and the stock trades above the offering level. That may be what's happening now, evidenced by DBGI decoupling from weak broader markets to close higher every day this week.

Here's better news for those watching and considering DBGI. Business is expected to get better, much better. Looking to 2023, projections accounting for full-year contributions from all brand assets, including Sundry, position DBGI to score revenues upward of $78 million, deliver EBITDA profit as early as 4Q22 and stay positive in all of 2023.

Thus, investing fashion-forward and owning this apparel sector growth company may be an investment style to consider. After all, with DBGI committed to growing, its largest ever acquisition about to close, and plenty of cash on hand to do much more in 2022, it would certainly wear well in a growth stock portfolio.

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