The Megaport Ltd (ASX: MP1) share price has just had a week to forget.
Last week, the network-as-a-service (NaaS) provider's shares lost 28% of their value.
This was driven by the release of Megaport's latest quarterly update, which revealed much softer than expected growth.
Is the Megaport share price good value now?
While the team at Goldman Sachs was disappointed with Megaport's quarterly update, it remains positive on the company's long term future and thinks investors should consider buying the dip.
According to the note, the broker has retained its buy rating but has taken an axe to its valuation. The latter is now $13.10, which is down 34% from its previous price target of $19.90.
Nevertheless, based on the current Megaport share price of $8.94, this new price target implies potential upside of 46% for investors over the next 12 months.
What did the broker say?
Goldman appeared surprised by the company's performance during the third quarter, but remains confident that things will improve at its rapid growth will soon resume. It said:
"Alongside FX headwinds, we believe the lower-than-expected growth in 3Q22 was driven by operational impacts from shifting to the partner channel go-to-market, which was reported to have (1) taken more time in training, integration and support to onboard partners (delaying partner/MVE growth); with this (2) also having an impact on direct sales teams which are currently being required to handle nearly all indirect transactions (delaying core business sales).
While impacting near term efficiency, once this is resolved, both direct and indirect channels should be able to deliver a re-acceleration in growth."
Why is it still bullish?
While Goldman has downgraded its revenue estimates, and therefore its price target on the Megaport share price, its analysts remain bullish due to the company's significant long term growth potential.
The broker explained:
"These revenue downgrades reflect a misstep in partner channel execution, alongside FX. However the long term opportunity for MP1 is unchanged, given (1) the growth in cloud/multi-cloud demand; (2) efficiency benefits from network 'softwarisation'; and (3) MP1's product lead (noting competitor Console Connect announced their Cloud Router product last week, c.4 years after Megaport). Hence, with MP1 shares -29% post 3Q22 results (vs. ASX200 -1%) we believe this misstep is now priced in. We re-iterate our Buy on MP1 into the expected improved 4Q22 performance. "
