GDS Holdings (GDS, Financial) experienced a steep decline in its stock price, dropping by 13.97% after the release of its latest earnings report. This movement stands in contrast to the S&P 500's simultaneous gain of over 1%. The decline is attributed to market reactions to the earnings, despite the company's improved financial performance over the previous year.
In its recent earnings announcement, GDS reported a 9% increase in quarterly revenue, reaching 2.69 billion yuan ($372 million). This performance marks a significant turnaround from the prior year's net loss of 3.07 billion yuan ($425 million), as the current net loss from continuing operations has improved to over 173 million yuan ($24 million). CEO William Huang emphasized that the company adhered to a disciplined strategy throughout 2024, focusing on backlog delivery and being selective with new commitments.
Looking ahead to 2025, GDS anticipates total revenue between 11.29 billion yuan ($1.56 billion) and 11.59 billion yuan ($1.6 billion), indicating at least 9% growth compared to 2024. The company's outlook for non-GAAP adjusted EBITDA suggests an expected increase, projected to range between 5.19 billion yuan ($718 million) and 5.39 billion yuan ($745 million), with the low end of this range showing a 6% increase from the previous year.
Despite the positive projections, GDS shows signs of financial distress based on several factors. The company's financial strength is a concern, with a poor balance sheet mainly due to high levels of debt, as indicated by an Altman Z-score of 0.42, placing it in the distress zone. This score suggests a possibility of bankruptcy within the next two years if conditions do not improve. Moreover, the company's interest coverage is extremely low, highlighting an inability to cover interest expenses with current earnings, potentially necessitating more debt issuance.
Comparatively, GDS Holdings' GF Value indicates that the stock is "Significantly Overvalued" with a GF Value of $18.14. The market capital of the company has been notably affected, now standing at $5.95 billion. For full valuation details, visit the GF Value page for GDS Holdings.
Investors should also be aware of the company's declining margins, with a long-term decline in gross margin and operating margin. These factors highlight potential inefficiencies and operational challenges. On a positive note, the Beneish M-Score suggests that the company is unlikely to be engaging in earnings manipulation, providing some reassurance regarding the accuracy of its financial reporting.
The stock's current price stands at $30.61, reflecting a 52-week high of $52.50 and a low of $5.85. Despite recent downturns, the stock has experienced a 285.03% increase over the last year, indicating some volatility but also a significant recovery from its lows.
