I’m Baaaaaack-GigaCloud Technology is a Screaming Buy

I'm baaaaaaaack. After a bit of a mental tweak sesh due to a rejection from Stanford, which hurt, I am refocused on grinding the numbers in my portfolio up. My mental rebirth has been aided by a recent reading of A Portrait of the Artist as a Young Man, a 5-0 victory by Tottenham (COYS), a decent loss by the Panthers, Christmas break, seeing my grandmother, and a decent night of sleep last night after staying up till 3:30 AM the night before playing Fortnite with my friends. Also aiding my mental comeback is the purchase of a stock I am pretty sure will 10x in the future. Yes, I am talking about GigaCloud Technology.

GigaCloud Technology ticks off too many boxes and looks like too much of a buy for me to ignore it. In this article, I will elucidate further on why I think this company is worth the risk, but if you don’t want to read the rest, my purchase boils down to this: I am willing to take on a ton of risk to obtain higher gains, and I think it is unlikely that I lose my shirt on this.

Okay, here is why GigaCloud is a buy.

GigaCloud is a bit of an odd company, and it can be hard to understand what they actually do. Basically, though, they have two components, a software platform that allows businesses to sell to each other for large parcels, merchandise, etc…, and a storage/fulfillment wing of the company as well. Basically, they allow companies to sell big things to each other and help companies by providing storage and shipping options as well. They are a technology company, with an old-fashioned shipping/fulfillment faction to smooth things over.

I do not mind this business model, and I think the B2B software platform is where the growth will come from. The shipping thing just services the software part of the company. This is not a trucking company, and owning a bunch of warehouses is pretty cheap, especially because they keep their employee count down.

They mostly deal with manufacturers in Asia sending things to sellers in Europe and America. Think gym equipment manufacturer in Vietnam or China sending things to a Dick’s in Arizona through the GigaCloud platform and paying GigaCloud to keep things in their warehouses. GigaCloud Marketplace is what the platform itself is called, and while it used to be solely a furniture Marketplace, they have moved on to equipment like home appliances, fitness equipment, and pet products.

Basically, think about GigaCloud Marketplace as Amazon for businesses. Smaller businesses can’t manage global supply chains, so GigaCloud handles that.

This is an attractive business model, so this company must be insanely overvalued, right? No, in fact, GigaCloud is wildly undervalued according to every metric I can find.

They have a 5.8 forward P/E ratio, a 27% gross margin, $3.18 EPS, zero debt, $1.11 billion in revenue, $300,000,000 in gross profit, and a $800 million market cap. Their market cap is smaller than their revenue. That makes NO sense for a company with seemingly few negatives surrounding it. Every DCF model I can find, and no I am not making one because that is dumb, has GigaCloud as undervalued by around 80%. The average analyst is predicting 110% growth over the next 12 months. Revenue is projected to grow by 17% annually, with earnings projected at 23%, both figures being in a suitable range for a holding of mine. Their ROE is about 32%, nearly double the industry average. Their margins are higher than last year, and over $122 million in free cash flow on $1.1 billy in revenue.

Last year, their earnings grew by 100%, compared to their industry, whose earnings shrunk by 2% last year. Their earnings have grown 70% annually for the past five years. They also don’t pay a dividend, which I am a big fan of.

Their CEO, Larry Wu, not like I am his best friend or anything, but I like him. I’ve listened to a few of his interviews, and he knows what he’s talking about. He started the company 19 years ago, and he owns 19% of the company, worth about $160 million. There is some turnover in management, with the average turnover only about 3 years, but this is a small company, and that is sometimes the price you pay. The average age of their management team is only 42, which I love. The younger, leaner, and hungrier a management team, the better.

So, this company might be the best buy on the market, and I have no fears, right? Wrong, sort of. Some people have called GigaCloud another Chinese scam, but I think that is false. GigaCloud IPOd in the US. That is very hard to do. They did not do a SPAC deal, they did not do a reverse merger, and really, they did not do any shady stuff, other than a late 10-K filing due to a recent acquisition, with nothing irregular in it. Obviously scams can get through the IPO process, but it is so rare, that I have very little fear that I will wake up one morning and see a headline about GigaCloud forging 50% of their revenue.

They do have a Chinese auditor, which is a little iffy, but they were a Chinese company that does most of its business in China, so I’ll let that slide for now.

In short, if you want a small-cap company that really, and I mean really, has a shot to 10x your money in a few years, but also has a shot at dropping 30% in a month, this is your stock.