Digital Realty Trust shares fell by -1.3% during the day's morning session, and are now trading at a price of $141.66. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
Digital Realty Trust's Valuation Is in Line With Its Sector Averages:
Digital Realty brings companies and data together by delivering the full spectrum of data center, colocation, and interconnection solutions. PlatformDIGITAL, the company's global data center platform, provides customers with a secure data meeting place and a proven Pervasive Datacenter Architecture (PDx) solution methodology for powering innovation 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 25.55 and an average price to book (P/B) ratio of 2.1. In contrast, Digital Realty Trust has a trailing 12 month P/E ratio of 39.1 and a P/B ratio of 2.42.
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 -7.27. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
Increasing Revenues but Narrowing Margins:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $3,046 | $3,209 | $3,904 | $4,428 | $4,692 | $5,477 |
| Operating Margins | 18% | 19% | 14% | 16% | 13% | 10% |
| Net Margins | 11% | 18% | 9% | 39% | 8% | 17% |
| Net Income (M) | $331 | $580 | $356 | $1,709 | $378 | $949 |
| Net Interest Expense (M) | $322 | $353 | $333 | $294 | $299 | $438 |
| Depreciation & Amort. (M) | $1,187 | $1,164 | $1,366 | $1,487 | $1,578 | $1,695 |
| Diluted Shares (M) | 207 | 209 | 263 | 283 | 298 | 309 |
| Earnings Per Share | $1.21 | $2.35 | $1.0 | $5.94 | $1.11 | $3.0 |
| EPS Growth | n/a | 94.21% | -57.45% | 494.0% | -81.31% | 170.27% |
| Free Cash Flow (M) | $60 | $77 | -$358 | -$819 | -$984 | -$1,891 |
| CAPEX (M) | $1,325 | $1,437 | $2,064 | $2,521 | $2,643 | $3,526 |
