Although the NEXTDC Ltd (ASX: NXT) share price is pushing higher today, it won’t be anywhere near enough to cancel out its year to date decline.
Since the start of the year, the data centre operator’s shares are down 15% to $10.52.
This is despite the company smashing expectations in the first half of FY 2021 and upgrading its guidance for the full year.
Is the weakness in the NEXTDC share price a buying opportunity?
One broker that believes this share price weakness is a buying opportunity for investors is Goldman Sachs.
The broker currently has a buy rating and $13.50 price target on the company’s shares.
Based on the latest NEXTDC share price, this implies potential upside of 28% over the next 12 months.
Why does Goldman Sachs like NEXTDC?
Goldman Sachs appears to have been very pleased with the company’s performance during the first half.
It commented: “We view this as a solid 1H21 update with accelerating revenue and EBITDA growth. pricing that was in-line with expectations (A$4.31mn/MW vs. GSe prior A$4.32mn/MW), and pleasing updates for its S3 and M3 developments which we now expect to commence billing in FY23.”
And while the broker noted that NEXTDC’s contracted MW was lower than it was expecting, it notes that management spoke positively about its outlook.
Goldman said: “Although 1H21 contracted MW was lower than GSe, it was in-line with the c.2MW p.a. of Enterprise contracts we typically expect, and commentary (release & call) remained upbeat on the outlook. This was supported by a strong start to 2H21, with NXT having signed a c.2-3MW Hyperscale contract in Jan-Feb.”
What about the future?
The broker believes there is strong growth ahead, which could bode well for the NEXTDC share price.
It explained: “Stay Buy on NextDC, which we believe is continuing to successfully execute in a high-growth industry. As a scenario to demonstrate this growth, we highlight that as NXT converts its contracted (but not yet billing) MW and previously disclosed options into revenue, this would drive a +22% 5Y revenue CAGR, and an EV/Sales of 9.6X.”
It is important to note that this doesn’t include its potential expansion into Asia after recently opening offices in Singapore and Tokyo.
Overall, this could make it worth taking a closer look at NEXTDC after its recent share price weakness.
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Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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