Why Macquarie sees another 20% growth in the Megaport (ASX:MP1) share price

Can Megaport shares hit the broker’s target?

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The Megaport Ltd (ASX: MP1) share price is soaring higher today to trade up 4.1% at $20.26.

That marks a record high for the ASX tech company, having rallied 21% in the past month alone. This comes after it bounced off its 52-week low on 29 March.

As such, shares in the global elastic interconnection services provider have come in well ahead of the S&P/ASX All Technology Index (ASX: XTX). The broad sector has gained around 4% over the past month.

And with this flurry of buying activity from investors comes attention from analysts at investment banking giant Macquarie Group Ltd (ASX: MQG), who have initiated coverage on the tech share.

Let’s get straight into it and see what the experts at Macquarie are saying about the Megaport share price.

Can Megaport shares gain another 20%?

The team at Macquarie certainly thinks so, particularly given the outcome from its trading update last month.

In its report, Megaport recognised substantial gains in recurring revenue of 14% from the previous quarter, totalling $8.6 million.

In fact, overall revenue surmounted to almost $25 million from the quarter, another 8% quarterly gain.

This, Macquarie reckons, is being under-appreciated by the market, as investors may be overlooking Megaport’s growth schedule.

As such, the broker has initiated coverage of the company by posting an outperform rating on the Megaport share price.

Analysts at the firm like the way Megaport generates revenue, by leasing port access of its virtual platform to tech customers.

It notes this business model – which is labelled as ‘Network-as-a-Service’ – appears to be robust and has attracted the likes of Zoom, Uber, and eBay as customers.

Macquarie reckons Megaport will continue to rebound its operations. This began around the same time it appointed a new chief revenue officer in February.

Alluding to its own projections, Macquarie notes that once 40% of all Megaport’s sellable ports are utilised, it is set to realise substantial margin improvements throughout its statement of income.

As such, it forecasts the company’s port utilisation to hit 75% by FY24, well ahead of the 47% achieved in FY21.

With these bullish points in mind, the broker patched a $24 price target on the company’s shares. That implies an 18% upside potential at the time of writing.

Megaport share price snapshot

The Megaport share price has soared around 30% in the last 12 months and 42% this year to date.

It has climbed 21% in the last month alone and lifted around 8% this past week.

Each of these results have outpaced the benchmark S&P/ASX 200 index (ASX: XJO)’s returns across all time frames.

Should you invest $1,000 in Megaport right now?

Before you consider Megaport, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Megaport wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended MEGAPORT FPO. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended MEGAPORT FPO. 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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