Gorilla Technology Group Inc (NASDAQ: GRRR) has close to doubled in recent weeks after it was shortlisted for a $400 million smart education and digital infrastructure project in Southeast Asia.
The said project is part of a multi-phase programme expected to exceed $2.5 billion in spending over the next 15 years.
Additionally, GRRR more than tripled its revenue to $20.67 million in the first half of 2024.
Still, there’s reason to remain cautious as Gorilla stock could lose its recent gains just as fast as it accumulated them.
Is Gorilla stock undervalued at writing?
Gorilla Technology is currently trading at a price to sales multiple of less than 1.
That’s significantly below 4 times the software companies go for on average.
So, its P/S multiple is indicative of a company that’s expected to sharply underperform the industry in terms of revenue growth.
But GRRR has been nothing short of exceptional on that front in its recent quarters.
Typically, all of it together would mean Gorilla stock is significantly undervalued at writing.
Having said that, past performance is not indicative of future returns, which is why the current valuation of Gorilla Technology shouldn’t come as a surprise for investors.
Could GRRR sustain its current growth rate?
Gorilla Technology is an AI-enabled smart city solutions company that is expected to see a slowdown moving forward.
Its revenue will likely decline by 0.2% in the coming year, as per Simply Wall St.
In comparison, the software industry at large is anticipated to grow 27% on a year-over-year basis during the same period.
Plus, GRRR investors are now used to seeing exponential top-line growth.
Even a minor deceleration in revenue, therefore, could result in an outsized hit to the company’s stock price.
So, if the projected weakness comes to pass, Gorilla stock may struggle to sustain its current levels, let alone push higher.
Gorilla executed a 10-for-1 stock split
Among risks Simply Wall St couples with investing in Gorilla Technology is also its estimate that earnings will decline by 67% on average over the next three years each.
The company’s high level of non-cash earnings makes its share price less attractive as well.
In April, GRRR executed a 10-for-1 reverse stock split that are broadly perceived as negative since such strategic moves typically signal the company is in financial trouble or struggling to meet exchange listing requirements.
Finally, Gorilla stock has materially diluted shareholders and will likely dilute them further as it raises money to fund its operations.
Despite significant gains in recent weeks, shares of Gorilla Technology Group Inc remain unattractive for income investors as they do not currently pay a dividend.
In September, GRRR partnered with Lanner Electronics to make its next-gen security convergence appliances.
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