Groupe Dynamite (GRGD-T): A Valuation Re-Rating Catalyst in the Apparel Sector

Groupe Dynamite Inc. (GRGD-T) is positioned to deliver a compelling valuation re-rating opportunity as its robust financial metrics and disciplined execution outpace peers like Aritzia (ATZ-T). Despite operating in a challenging macroeconomic environment, GRGD's superior EBITDA margins, industry-leading returns on invested capital (ROIC), and aggressive growth initiatives suggest its current valuation is ripe for convergence with peers. This article explores why investors should act now to capitalize on its undervalued multiple and upcoming catalysts.

Financial Fortitude: Margin Resilience and Capital Efficiency

Groupe Dynamite's Q1 2025 results underscore its ability to deliver margin stability and capital efficiency amid headwinds. Adjusted EBITDA rose 19.8% to $66.8 million, with margins holding steady at 29.5% despite a 180-basis-point decline in gross margins due to tariffs. This resilience was enabled by cost mitigation strategies, including agile inventory management (inventory turnover improved to 8.50x) and disciplined capital allocation.

The company's ROCE (Return on Capital Employed) surged to 44.5% in Q1 2025, a 710-basis-point jump from 37.4% in Q1 . This metric, a key component of ROIC, highlights GRGD's superior capital deployment compared to peers. Meanwhile, its net leverage ratio dropped to 0.92x, reflecting debt reduction and strong free cash flow ($41.6 million in Q1), which rose 13.7% year-over-year.

Outperforming Aritzia in Metrics That Matter

National Bank analyst Vishal Shreedhar emphasizes GRGD's operational superiority versus Aritzia (ATZ-T):
- EBITDA Margin: GRGD's 29.5% margin in Q1 2025 exceeds Aritzia's 9.0% margin in Q2 2025 (post-tariff recovery).
- ROIC: GRGD's ROIC ranks among the highest in the apparel sector, while Aritzia's ROIC, though improving, remains lower.
- Growth Trajectory: Both companies project mid-to-high single-digit comparable store sales growth, but GRGD's EBITDA growth (19.8%) outpaces Aritzia's 160% EBITDA rebound (aided by one-off factors like tariff relief).

Despite these advantages, GRGD trades at a 44% discount to Aritzia's NTM EBITDA multiple (9.2x vs. 14.3x). This valuation gap creates a clear re-rating opportunity if GRGD's execution aligns with its growth targets.

Catalysts to Drive Re-Rating

1. Upcoming Q2 Results and Revised Guidance: GRGD's Q2 results, due soon, will test its ability to sustain momentum. Aritzia's Q2 results demonstrated margin resilience; GRGD's similar performance could validate its multiple expansion.
2. Share Buybacks: GRGD repurchased $2.3 million of shares in Q1, signaling confidence in its stock. With $41.6 million in free cash flow, further buybacks could accelerate if margins hold.
3. Strategic Expansion: The upcoming U.S. distribution center and 13% revenue CAGR target (through 2027) position GRGD to capture growth in key markets.
4. Macro Resilience: Cost efficiencies and store-level productivity (13% comparable sales growth) reduce vulnerability to economic slowdowns.

Valuation: Closing the Gap to 14x NTM EBITDA

At its current multiple of 9.2x NTM EBITDA, GRGD is undervalued relative to its fundamentals. National Bank's upgraded $32 price target (implying 60% upside from current levels) assumes a re-rating to Aritzia's multiple of 14.3x. Even a partial convergence to 14x NTM EBITDA would require GRGD's stock to rise ~50%, given its annualized EBITDA of ~$267 million (Q1 run rate).

Investment Recommendation

Buy GRGD-T at current levels. The stock offers a risk-reward profile skewed to the upside, with minimal downside given its strong free cash flow and de-risked balance sheet. Investors should target a 14x NTM EBITDA multiple, implying a 12-month price target of $32. Key risks—such as tariff escalation or supply chain disruptions—are mitigated by GRGD's track record of margin preservation and inventory agility.

Final Thoughts

Groupe Dynamite is a rare blend of margin resilience, capital efficiency, and growth momentum in an undervalued package. With peers like Aritzia trading at premiums reflective of similar growth but weaker fundamentals, GRGD presents a compelling case for convergence. Act now before multiples narrow—the re-rating train is about to leave the station.

Disclosure: This analysis is based on publicly available data. Always conduct your own research or consult a financial advisor before making investment decisions.