Today we're going to take a closer look at large-cap Real Estate company Digital Realty Trust, whose shares are currently trading at $90.96. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
Digital Realty supports the world's leading enterprises and service providers by delivering the full spectrum of data center, colocation and interconnection solutions. PlatformDIGITALR, the company's global data center platform, provides customers a trusted foundation and proven Pervasive Datacenter Architecture PDxTM solution methodology for scaling digital business and efficiently managing data gravity challenges. The company belongs to the Real Estate sector, which has an average price to earnings (P/E) ratio of 24.81 and an average price to book (P/B) ratio of 2.24. In contrast, Digital Realty Trust has a trailing 12 month P/E ratio of 81.9 and a P/B ratio of 1.6.
P/B ratios are calculated by dividing the company's market value by its equity's book value. Equity refers to all of the company's assets minus its liabilities. Traditionally, a P/B ratio of around 1 shows that a company is fairly valued, but owing to consistently higher valuations in the modern era, investors generally compare against sector averages.
When we divide Digital Realty Trust's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -1.35. Since it's negative, the company actually has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
