As of July 19, 2023, Digital Realty Trust Inc (DLR, Financial) has demonstrated a positive change in its stock price, reaching $121.17. With a market cap of $35.3 billion, the company's key financial metrics and GF Value suggest it may be modestly undervalued. The GF Value, a unique indicator of a stock's intrinsic worth, sets the fair value at $159.82.
Digital Realty Trust, a real estate investment trust, operates over 300 data centers worldwide, offering a range of services from retail co-location to "cold shells". The company's operations span five continents with nearly 40 million rentable square feet. Over the years, Digital Realty Trust has been evolving its business model to provide higher-level services to tenants, increasingly serving enterprises and facilitating network and cloud connections.
Understanding the GF Value of Digital Realty Trust Inc (DLR, Financial)
The GF Value of a stock is determined by historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and estimates of future business performance. For Digital Realty Trust, the GF Value Line suggests that the stock may be modestly undervalued. If a stock's price is significantly below the GF Value Line, it indicates potential for high future returns. Given Digital Realty Trust's current market cap of $35.3 billion, it seems to be modestly undervalued.
Given this undervaluation, the long-term return of Digital Realty Trust's stock is likely to be higher than its business growth. This is depicted in the GF Value chart below:
Evaluating Financial Strength
Investors must be cautious of companies with poor financial strength as they pose a high risk of permanent capital loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Unfortunately, Digital Realty Trust's cash-to-debt ratio of 0.01 ranks worse than 85.64% of companies in the REITs industry, indicating poor financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Digital Realty Trust has been profitable for the past 10 years, with an operating margin of 14.24%, although this ranks worse than 86.96% of companies in the REITs industry. The average annual revenue growth of Digital Realty Trust is 0.9%, ranking better than 50.32% of companies in the REITs industry. However, its 3-year average EBITDA growth is -8.9%, ranking worse than 73.82% of companies in the REITs industry.
ROIC vs WACC
Another method of evaluating a company's profitability is by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. In the past 12 months, Digital Realty Trust's ROIC was 1.58, while its WACC was 6.94.
Conclusion
In conclusion, Digital Realty Trust (DLR, Financial) appears to be modestly undervalued. Despite its poor financial strength, the company's profitability is fair. However, its growth ranks worse than 73.82% of companies in the REITs industry. For more information about Digital Realty Trust stock, check out its 30-Year Financials here.
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