Buy the Dip? GitLab’s Bullish Case Outweighs the Bears

Key Points

• GitLab's underwhelming Q3 guidance gave the market an excuse to sell, opening up another dip-buying opportunity.
• The Q2 results and guidance are solid, showing strong growth and a widening margin.
• Analysts and institutional trends suggest the bottom is in and a rebound is brewing; it's only a matter of time.

GitLab’s NASDAQ: GTLB FQ2 earnings report provided the market with excuses to sell, including tepid guidance and the sudden departure of its CFO. However, the report also included ample reasons to buy the dip, including better-than-expected results, margin improvement, and signs of momentum that suggest the guidance could be cautious. 

All in all, GitLab had a solid quarter, underpinned by the expansion of AI and the development of software globally. It sustains high-level growth and is guiding it to continue. The primary takeaway for investors is that the profitable AI company produces value for its investors and is deeply undervalued at early-September trading levels. 

Valuation and Analysts Point to Double-Digit Upside for GTLB Stock

The stock is not cheap, trading at over 55x its 2025 earnings outlook, but this is pricing in significant growth. The valuation falls to only 22x the 2030 consensus, which is likely to be low. That sets the stock up for a substantial, 50% price increase that aligns with the analysts' sentiment trends.

The analysts backed off on their price targets over the past year but remain very bullish on this stock and forecast a 35% upside at the consensus. 

The analyst trends as of early September include firm coverage with 25 analysts tracked by MarketBeat and a Moderate Buy rating with bullish bias. The Q2 results may not inspire price target increases, but are equally unlikely to inspire significant price target reductions or downgrades, leaving the consensus a viable target.

Even so, trading in the low $40’s, this stock is below the lowest analyst's target, trading near long-term lows and critical support levels, set up to rebound this year. 

GitLab Outperforms in Q2, Underwhelms With Guidance

GitLab had a solid quarter in Q2 with revenue growth by 29.2% to $236 million, outpacing the consensus by nearly 400 basis points on client growth and service penetration. The company reports an 11% increase in clients, 25% among the largest, and a 121% net retention rate that points to continued growth in upcoming quarters.

Other forward indicators of the business, including the remaining performance obligation or RPO, were also positive, up by 32% and ahead of the top-line. 

The margin news is mixed but ultimately bullish for investors. The company’s gross margin contracted slightly, but was offset by spending control and revenue leverage to drive accelerated results on the bottom line. The company’s net income grew by 67%, adjusted EPS by 60%, and free cash flow, the all-important metric, by 350%. 

The company is forecasting growth to continue; the sticking point for traders is the fact that growth is expected to slow and come in slightly below the consensus forecast. The crucial detail for investors is that the company is reaffirming its revenue guidance despite obvious strength, so it is likely to be cautious, and the margin outlook has improved.

GitLab expects earnings for Q3 and the year to come in well-above the consensus figures and drive substantial cash flow.

GitLab’s Balance Sheet Is a Reason to Buy the September Dip

GitLab’s balance sheet is a fortress and only stronger now that Q2 has come to a close. The year-to-date highlights from the report include increased cash, inventory, current, and total assets, flat to slightly higher current and total liabilities, and an 11% increase in shareholder equity.

The company effected the increase via self-funded growth; there is no long-term debt, and total liabilities are low relative to its cash and equity, running at roughly 2.2x and 1.55x, respectively. 

The price action in 2025 isn’t spectacular, but it does reveal a bottom, and the institutional activity suggests it is a hard floor. The institutions own nearly 100% of this stock and have bought robustly each quarter of 2025, including the first half of Q3, with the balance of activity greater than $2 to $1 buyers to sellers in each period.

They are likely to continue this trend as the quarter progresses. The stock price may move as low as $40 in this scenario, but it will likely rebound from it, if not from a higher level, and continue to move sideways within its range until a more potent market catalyst emerges.