Is the Megaport share price back on track after a broker upgrade?

A mother and her young son are lying on the floor of their lounge sharing a tech device.A mother and her young son are lying on the floor of their lounge sharing a tech device.

The Megaport Ltd (ASX: MP1) share price jumped 3.27% on Thursday to end the day’s trading at $8.84.

Megaport shares seem to have benefitted from an ASX tech tailwind started by a positive session from its peers listed on the Nasdaq Composite (NASDAQ: .IXIC) overnight. 

On top of that, broker Jefferies initiated an upgrade in the Megaport share price target from $5.94 to $9.60

Before diving into the performance of the NASDAQ and the broker upgrade, here is a quick recap of Megaport’s full-year financial results, which the company released on Tuesday.

Megaport FY22 recap

Highlights of the Megaport FY22 results included: 

  • Revenue jumped 40% from $78 million to $109 million 
  • Net loss improved by 12% from ($55 million) to ($48.5 million) 
  • Operating cash flow went backwards from ($8.6 million) to ($9.8 million)
  • No dividend declared

The Megaport share price soared 10% on the back of the results on Tuesday, but fell almost 5% on Wednesday.

Broker raises Megaport share price target

Broker Jefferies liked the financial results, pushing up its price target to $9.60 from $5.94. 

According to Thomson Reuters, Jefferies said, “This result proves that management is capable of delivering strong operating leverage.”

While these set of results indicate an improvement in profitability, I would not consider it to be a strong display of operating leverage. 

Investors ought to be mindful of the consistent decline in net income since the cloud networking company listed in late 2015. 

I would prefer to see more evidence of improvement in profitability before putting it in such a basket.

The broker upgraded its guidance for FY23 and FY24 revenue by 9% and 14% respectively. 

Jefferies also flagged risks in the tightening of IT expenditure in a recession and higher capital expenditure (capex) due to inflation and supply chain issues. 

Despite noting these risks, Jefferies has maintained a “hold” rating. 

NASDAQ rallies overnight 

The NASDAQ includes tech giants like Apple (NADSAQ: AAPL) and Microsoft (NASDAQ: MSFT). It rose by 2.9% yesterday, bringing its gains to 20.7% from lows recorded in June. 

According to the Financial Times, consumer prices in the US rose 8.5%, falling below economists’ forecasts of 8.7%. Further, there was no increase in inflation in July as opposed to a 1.3% monthly rise in June. 

This might partly explain the recent rally on the NASDAQ and the flow-on effect on tech and growth stocks on the ASX.

Some notable tech stocks like Life360 Inc (ASX: 360) and Block Inc (ASX: SQ2) experienced jumps of 13% and 8% today respectively. 

Megaport share price snapshot

The overall equities market has been engulfed in a sea of red this year and the Megaport share price is no exception. 

Year to date, the Megaport share price has more than halved, dropping by 53%. However, in the last month, the Megaport share price has rallied to jump by nearly 44%. 

The S&P/ASX 200 Index (ASX: XJO) is down 7% year to date but has clawed its way back in the last month to post a gain of 7%. 

Megaport suffered from the big tech and growth sell-off this year. The Megaport share price is showing signs of recovery, so it could be worth monitoring over the short to medium term. 

The post Is the Megaport share price back on track after a broker upgrade? appeared first on The Motley Fool Australia.

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More reading

Motley Fool contributor Raymond Jang has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Block, Inc., Life360, Inc., MEGAPORT FPO, and Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has positions in and has recommended Block, Inc. The Motley Fool Australia has recommended Apple and MEGAPORT FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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