The NEXTDC Ltd (ASX:NXT) share price has been on fire in 2020 but one leading broker thinks it can still go higher from here…
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The NEXTDC Ltd (ASX: NXT) share price has been a very strong performer in 2020.
Since the start of the year the data centre operator’s shares have stormed 70% higher.
Is it too late to buy NEXTDC shares?
I don’t believe it is too late to buy NEXTDC’s shares. In fact, even after their strong gain this year, I feel they are good value for a long term investment.
This is due to the quality of its data centres and the increasing demand for its services thanks to the accelerating shift to the cloud.
One broker that agrees that NEXTDC is in the buy zone still is Goldman Sachs. This week the broker reaffirmed its buy rating and $13.20 price target on the company’s shares.
This price target implies potential upside of almost 19% for its shares over the next 12 months.
Why is Goldman positive on NEXTDC?
Goldman Sachs believes that there is still plenty of upside ahead for the NEXTDC share price despite its 70% gain in 2020.
It commented: “given the significant share price appreciation across 2020 YTD, many investors query the current trading multiples for NextDC (i.e., 22X FY21 EV/Sales vs. peer avg. of 12X) and question whether there is further upside from here.”
“We argue that given the significant contracted, but not yet billing MW [megawatts], along with material capacity options, a near term multiple based comparison is not necessarily reflective of the true value within this business, and note that should we incorporate the full revenue run-rate of its contracted, but not yet billing MW, along with its options, NextDC would be trading on an FY21 EV/Sales of 10X,” it explained.
Can the NEXTDC share price go even higher?
The broker has suggested that the NEXTDC share price could even go beyond its price target and all the way to $20.00.
Its analysts commented: “Our scenario analysis suggests that a value of $20 per share is possible for NextDC, based on assumptions that are high, but in our view not unrealistic considering the current acceleration in demand that is evident across the business.”
All in all, I think Goldman Sachs is spot on and NEXTDC would be a great addition to a balanced portfolio.
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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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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