GigaCloud Technology Inc. GCT shares have witnessed a significant decline of 24.6% since April 2024 against 11.5% growth of its industry and the 10.8% rise of the Zacks S&P 500 composite index.

Six Months Price Performance

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Among the company’s close competitors, A-Mark Precious Metals, Inc. AMRK has witnessed a 37.7% rise and Alliance Entertainment Holding Corporation AENT has seen a 28.9% increase in the same timeframe.

As of the last trading session, the GCT stock closed at $26.4, which is 71.1% lower than its 52-week high of $45.18. Here, we have conducted a thorough analysis of GCT to determine if it is a good investment now and whether investors should purchase, hold or sell the company’s shares.

U.S. Economic Slowdown Threatens GCT’s Growth

Per a report by The Conference Board, the U.S. economy is anticipated to lose its momentum in the second half of 2024 due to a rise in prices and an augmented interest rate decline in domestic demand. This, in turn, will lead to a slower momentum heading into 2025, which could lower growth to 1.7% year over year from the current growth rate of 2.4%. If the expected slowdown in the U.S. economy comes to fruition, it will severely impact GigaCloud’s business.

As of the second quarter of 2024, 99% of ocean transportation services’ revenues and 75% of product revenues originate from the U.S., which suggests that the U.S. economy has a substantial impact on GigaCloud Tech’s performance. The company’s stock performance might decline heavily if the macroeconomic conditions deteriorate more than estimated.

GCT Expects Weaker Top Line in Q3

In the second quarter of 2024, GCT reported revenues of $310.9 million, increasing 103.1% from the preceding quarter and it surpassed its revenue guidance provided in the preceding quarter by a significant margin. Such a strong performance can lead investors to expect GigaCloud Tech to perform even better in the upcoming quarters.

However, in the second quarter of 2024, management expected its third-quarter 2024 top line to be $266-$282 million. Such a pessimistic view can be attributed to seasonality issues due to GCT’s Noble House business, and macroeconomic headwinds due to an expected decline in the U.S. economy, thereby affecting GCT’s price performance.

GigaCloud Tech’s Valuation Plunges

The strong financial performance across the past quarters contradicts the declining valuation of GigaCloud. It indicates a limited margin of safety for prospective investors. The stock trades at a forward 12-month Price/Earnings ratio of 8.36X, significantly below the industry average of 33.9X.

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The company’s trailing 12-month Enterprise Value/EBITDA ratio is 7.83X compared with the industry’s 52.51X.

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GCT’s Earnings Estimates Decline

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

Exiting Your GCT Position Seems the Best Option

Despite a significant decline in the past six months, GigaCloud has not only gained 43.3% in the year-to-date but has also shown a remarkable rise of 208.4% over the past year. Investors who have held GCT for the long run may consider selling their shares now to secure their profits, as the looming threat of a macroeconomic slowdown in the United States, uncertain earnings prospects and a weaker top line could lead to a further decline in stock price. Potential investors are advised not to invest in GigaCloud Tech now.

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

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

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