The Megaport Ltd (ASX: MP1) share price was a positive performer again on Thursday.
The elasticity connectivity and network services interconnection provider’s shares finished the day almost 1% higher at $17.71.
This means the Megaport’s are up nearly 4% over the last three trading sessions.
Why is the Megaport share price rising this week?
The catalyst for the rise in the Megaport share price this week has been a broker note out of Citi.
According to the note, the broker has initiated coverage on the company’s shares with a buy rating and $20.00 price target.
Based on the current Megaport share price, this implies potential upside of 13% even after its gains this week.
What did the broker say?
Citi is feeling bullish on the Megaport share price due to its belief that the company is well-positioned to deliver very strong revenue growth in the coming years.
And while it acknowledges that its shares are not cheap, it believes its growth profile justifies the premium.
Citi explained: “We see Megaport as a play on multiple trends, specifically increasing multi-cloud adoption, and infrastructure and computing getting more distributed as well as increasing digitisation. The recent introduction of Megaport Virtual Edge (MVE) expands Megaport’s addressable market, which along with push to leverage channel partners to go to market is expected to deliver strong growth over the medium-term.”
“At 23x FY22e revenue (CitiE), we acknowledge that a lot of the growth is priced in, however with a forecast 3 year revenue CAGR of 40%+ and operating leverage expected to deliver software like margins (CitiE: long term EBITDA margins of 50%), we still see upside to current levels. One risk to consider is that MVE could take longer to gain traction given a more complex sale and dependency on SD-WAN partners,” it added.
Overall, the Megaport share price may be up 25% in 2021, but this broker doesn’t believe it is too late to invest.