Is tech share Nextdc Ltd a buy after tripling its earnings?

There have been a number of strong performers in the information technology sector this year. Aconex Ltd (ASX: ACX) shares have climbed 46% and Altium Limited (ASX: ALU) shares are up 55%, but one company has outperformed these two market darlings.

That company is data-centre-as-a-service provider Nextdc Ltd (ASX: NXT). Its share price has gone gangbusters this year and climbed a massive 63%. Today the fledgling company released its full year results to the market and in my opinion fully justified this incredible rise.

A few highlights include:

  • Revenue increased 52% to $92.8 million, beating guidance of $85 million to $90 million.
  • EBITDA increased a massive 247% to $27.7 million, coming in at the top of its guidance range of $25 million to $28 million.
  • Statutory net profit came in at $1.8 million, compared to a net loss of $10.3 million in FY 2015.
  • Diluted earnings per share of 0.8 cents.
  • Cash and term deposits of $191.4 million at June 30 2016.

Although the market reaction has been largely subdued and its shares have been more or less flat today, don’t let that fool you into thinking this is a disappointing result. I believe this is an incredibly strong result and a testament to the great work its management has been doing.

Management revealed that NEXTDC continued to experience strong demand for its services in FY 2016 and expects demand to heighten further in FY 2017. So much so it has provided guidance that will no doubt raise a few eyebrows.

In FY 2017 the company has forecast revenue in the range of $115 million to $122 million, up 24% to 31% on FY 2016. But even more impressive was its guidance for EBITDA. Management expects EBITDA in the range of $46 million to $50 million, an increase of 66% to 80% on this year’s result.

Much like Aconex, NEXTDC will become even more profitable as it scales. It is for this reason that I feel you can justify ignoring the exorbitant earnings multiple that it trades on at the moment and focus more so on its incredible growth prospects.

For me, NEXTDC represents a great long-term investment that would be a fantastic addition to most portfolios today.

But before making an investment in NEXTDC I would highly recommend taking a look to see if you own one of these three wealth-destroying ASX shares. Each could be holding back your portfolio and might be best swapped out.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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 Bruce Jackson.

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