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Why I think Megaport shares offer enormous long-term growth potential

ASX technology company Megaport Ltd (ASX: MP1) offers customisable, on-demand network services to corporate clients. It helps clients expand their network connectivity beyond the limits of traditional infrastructure by leveraging cloud-based technology. These services can help businesses stay connected when many staff are working remotely, as is the case right now because of the COVID-19 pandemic. But Megaport’s cloud network services also help to facilitate more agile working environments, even when the world is functioning a little more ‘normally’.

Megaport also gives companies the flexibility to manage their bandwidth usage: customers can scale up their bandwidth when transferring large amounts of data for major projects, and then reduce consumption during off-peak times. This allows companies to be more efficient with their data usage, cutting costs.

Along with other tech companies like data warehouse operator NextDC Ltd (ASX: NXT) and internet communications company MNF Group Limited (ASX: MNF), Megaport has been one of the few success stories to emerge out of the COVID-19 pandemic.

Revenues for the June quarter surged by 12% versus the prior quarter, and were up by 66% year-on-year to $17 million. The company also expanded its presence internationally, establishing operations in both Spain and Denmark.

Should you invest?

Despite a recent pullback, Megaport shares have still just about doubled in price since March, and are currently trading at $13.04. This is short of the 52-week high of $15.50 they reached in early June, but still means Megaport shares have risen a little over 20% so far in 2020.

With the economic outlook growing increasingly gloomy, many new investors may be understandably reluctant to pick up shares in companies that have already experienced strong recent gains. There is always the very real fear that a market correction is just around the corner, and the share prices of many growth companies could collapse – as they did back in March.

However, investors should balance this trepidation against a longer-term outlook. The coronavirus pandemic has the potential to bring about permanent changes in the way we all live. Many people may have discovered that working remotely suits their lifestyles much better. Big companies may also realise that they can save huge amounts on rent and other property costs by supporting more flexible working arrangements. And these changes need to be supported by the type of strong, adaptive, agile networks that Megaport facilitates.

Megaport has already racked up an impressive list of big-name international clients, including Adobe Inc, Tesla Inc and Zoom Video Communications Inc. This shows the importance that big, forward-thinking corporations place on creating secure, cloud-based networks for an agile workforce.

While there may be a few bumps along the way, I think over the long-run Megaport has the potential for enormous gains.

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Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO, Tesla, and Zoom Video Communications and recommends the following options: short August 2020 $130 calls on Zoom Video Communications. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. 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.

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