The NEXTDC Ltd (ASX: NXT) share price was out of form in September.
Weakness in the tech sector led to the data centre operator's shares falling 9% during the month.
This means the NEXTDC share price is now down 16% from its 52-week high.
Is the NEXTDC share price in the buy zone?
One broker that is likely to see the recent weakness in the NEXTDC share price as a buying opportunity is Morgans.
According to a recent note, the broker has an add rating and $14.64 price target on its shares.
Based on the current NEXTDC share price of $11.86, this implies potential upside of 23% over the next 12 months.
What did Morgans say?
Morgans was pleased with the company's performance in FY 2021 and its outlook for the year ahead.
It commented: "NXT's FY21 result was slightly better than guidance and our forecasts. FY22 revenue and EBITDA guidance is in line with market expectations. For both years growth was/is expected to be 20-30% pa. It was a good year and a good outlook."
However, it is the company's long term outlook that makes Morgans particularly bullish on the NEXTDC share price.
The broker explained: "We retain our Add recommendation and highlight that NXT remains our preferred pick. We see a clear pathway for long-term growth, substantially higher EBITDA and material free cash flow, over the medium term. In the shorter term we think there are catalysts to continue driving the share price higher."
One of those catalysts is the massive structural growth of cloud and digitisation which continues to require significant digital infrastructure. Morgans notes that NEXTDC is a key supplier at the forefront of this trend.
As a result, it feels there is a high likelihood of Cloud Service Providers (CSPs) exercising the options they have for capacity within its centres.
It commented: "MW contracted but not yet billing and BAU sales through the channel unpin NXT's capacity to generate ~$200m of EBITDA in FY23. With new facilities coming online and management continuing to invest in growing and evolving the business, our forecast is for $186m (with upside risk). Options with CSPs could push this to $300m (assuming 100% billing)."
Morgans appears to believe this could cause a significant rerating of the NEXTDC share price if the bullish case plays out.
All in all, this could make it worth considering NEXTDC as a long term investment.
