Key points
- Megaport has been rated as a buy by Goldman Sachs
- It believes the company has a massive $129 billion market opportunity
- Goldman sees 35% upside for its shares in 2022
The Megaport Ltd (ASX: MP1) share price could be great value according to the team at Goldman Sachs.
This follows a sharp pullback in the elastic interconnection services provider's shares last week following the tech selloff and the release of its second quarter update.
What did Goldman say about the Megaport share price?
According to the note, Goldman believes the Megaport share price is trading on attractive multiples compared to historical levels.
In light of this, the broker has initiated coverage on Megaport's shares with a buy rating and $20.00 price target.
Based on the current Megaport share price of $14.80, this implies very attractive potential upside of 35% over the next 12 months.
Why is the broker bullish?
Goldman Sachs is bullish on the company due to its first mover advantage as a global provider of cloud connectivity and networking solutions. This is a massive market, with the broker estimating that Megaport has a $129 billion opportunity in current geographies.
Its analysts commented: "MP1 is benefiting from its first-mover advantage, and two structural tailwinds that accelerated through covid-19, including: (1) The adoption of public cloud & multi-cloud usage; and (2) The growth in Networking as a Service (NaaS)."
"Although volatile on a quarterly basis, MRR growth has remained robust at > 40% (cc) for 6 qtrs, and is now annualizing $110mn. However, the opportunity for further growth is immense (GSe A$129bn p.a. spent on fixed enterprise networking across MP1 geographies). Hence with +35% upside to our TP (A$20), and attractive current trading multiples (vs. history), we initiate at Buy," it added.
In addition to Megaport, Goldman is a fan of NEXTDC Ltd (ASX: NXT) in the cloud space. It has a conviction buy rating and $14.40 price target on its shares.
