Is the Megaport share price a long term buy?

The Megaport Ltd (ASX:MP1) share price is up 70% in a year. Is it too late to buy or could it be a long term market beater?

| More on:
Graphic representation of internet of things

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Megaport Ltd (ASX: MP1) share price has been an incredible performer over the last 12 months.

Although its shares have fallen almost 17% from their June high, they are still up approximately 70% since this time last year.

This compares to an 11.5% decline by the S&P/ASX 200 Index (ASX: XJO) over the same period.

Why is the Megaport share price up 70% in 12 months?

Investors have been scrambling to buy the shares of the global leading provider of elastic interconnection services after the pandemic accelerated the shift to the cloud.

Its global platform allows users to organise all their connections from one place and bring their network together into an easy-to-use platform.

This means businesses can build hybrid, multi-cloud, cloud-to-cloud, and disaster recovery solutions with multiple connections to regional and global services. And instead of managing each resource separately, Megaport brings everything together into a seamless process.

Among its 1,842 customers (up 24% year on year), you'll find a diverse range of companies such as Adobe, BHP Group Ltd (ASX: BHP), FedEx, ING, Tesla, and Zoom.

Management notes that another driver of this strong customer growth has been its growing ecosystem, which is adding value to users.

The company's CEO, Vincent English, explained: "Megaport's strategy revolves around driving more value for our customers, partners, and shareholders. We have grown our ecosystem to over 360 service providers and now connect customers to 197 cloud onramps – the most of any neutral global interconnection fabric."

"We've made it easier than ever for our customers and partners to securely connect to the services that power their businesses. This has paid off with strong growth in our regional business units which is underpinned by increased customer usage and the growing adoption of multicloud."

What about revenues and profits?

From the aforementioned customers, the company is currently generating Monthly Recurring Revenue (MRR) of $5.7 million. This MRR equates to approximately $68.5 million on an annual basis.

And while Megaport is making a loss at the moment while it pursues growth, it recently revealed that it is aiming to achieve EBITDA breakeven by the end of FY 2021.

Mr English commented: "Profitability remains a company-wide priority. We will focus on achieving EBITDA breakeven by the close of Fiscal Year 2021 by driving further customer growth across all regions."

Looking ahead, the CEO appears confident that its strong growth can continue.

"With our SDN reaching over 700 enabled data centres across 23 countries, we are well positioned to capture the demand for elastic interconnection to support the ever-increasing surge of data powered by the digital economy," he added.

Should you invest?

Although the Megaport share price is up 70% over the last 12 months, I would still be a buyer if you're planning to make a long term investment.

Along with Macquarie Telecom Group Ltd (ASX: MAQ) and NEXTDC Ltd (ASX: NXT), I believe Megaport is well-placed for long term growth thanks to the structural industry tailwinds which are accelerating the cloud computing boom.

James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia has recommended MEGAPORT FPO. 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.

More on Growth Shares

a happy investor with a wide smile points to a graph that shows an upward trending share price
Growth Shares

Here are the top five ASX 200 shares in Macquarie's model growth portfolio

These ASX 200 shares are highly rated by analysts at Macquarie.

Read more »

a man with a wide, eager smile on his face holds up three fingers.
Growth Shares

3 ASX shares to buy in 2024 and hold for the next 10 years

Analysts think these top shares are in the buy zone right now.

Read more »

A man leans forward over his phone in his hands with a satisfied smirk on his face although he has just learned something pleasing or received some satisfying news.
Growth Shares

4 ASX growth shares I think will benefit from interest rate cuts in 2024

Not only will home loan holders rejoice, investors of these stocks could also be yelling with joy when the Reserve…

Read more »

A smiling woman sits in a cafe reading a story on her phone about Rio Tinto and drinking a coffee with a laptop open in front of her.
Growth Shares

3 of the best ASX growth shares to buy now

Analysts see plenty of upside for these buy-rated shares.

Read more »

A man and woman in an office look at a laptop and discuss investing, budget strategies or other financial concepts
Growth Shares

Here's why analysts love these buy-rated ASX 200 growth shares

There's a reason analysts are feeling bullish about these companies.

Read more »

A woman with strawberry blonde hair has a huge smile on her face and fist pumps the air having seen good news on her phone.
Growth Shares

Big returns could be coming for high-flying Lovisa shares

Morgans doesn't believe it is too late to snap up this hot stock.

Read more »

Smiling young parents with their daughter dream of success.
Growth Shares

Why these ASX 200 growth shares could be top buys now

Analysts are feeling bullish about these growth stocks. Let’s see what they’re saying.

Read more »

Concept image of a man in a suit with his chest on fire.
Growth Shares

Ignore the noise and buy this hot ASX growth stock

A recent pullback may have created a buying opportunity according to Bell Potter.

Read more »