With a daily gain of 1.49%, a 3-month gain of 35.93%, and an Earnings Per Share (EPS) of 1.3, Digital Realty Trust Inc (DLR, Financial) has sparked the interest of value investors. This article aims to provide a comprehensive valuation analysis of Digital Realty Trust, answering the question: Is the stock modestly undervalued? Let's dive into the financials and the future prospects of DLR.
A Snapshot of Digital Realty Trust
Digital Realty Trust Inc (DLR, Financial) owns and operates over 300 data centers worldwide, offering a range from retail co-location to "cold shells." With nearly 40 million rentable square feet across five continents, Digital Realty Trust has established a robust global presence. The company's stock price is currently at $122.77 per share, with a market cap of $37.20 billion. However, the GF Value, an estimation of the fair value, stands at $152.56, indicating that the stock could be modestly undervalued.
Understanding the GF Value of Digital Realty Trust
The GF Value is a proprietary measure that provides an estimate of a stock's intrinsic value. It's calculated based on historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
According to the GF Value Line, Digital Realty Trust (DLR, Financial) stock appears to be modestly undervalued. This assessment is based on historical multiples, past business growth, and future performance estimates. At its current price of $122.77 per share, with a market cap of $37.20 billion, the stock's long-term return is likely to be higher than its business growth due to its relative undervaluation.
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Financial Strength of Digital Realty Trust
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before purchasing shares. Digital Realty Trust's cash-to-debt ratio is 0.01, ranking worse than 86.57% of 715 companies in the REITs industry. This indicates that the financial strength of Digital Realty Trust is relatively poor.
Profitability and Growth of Digital Realty Trust
Investing in profitable companies usually carries less risk. Digital Realty Trust has been profitable for 10 years over the past decade. However, its operating margin of 13.39% is worse than 88.1% of 664 companies in the REITs industry. The company's growth, a significant factor in valuation, also ranks worse than 50.4% of 631 companies in the REITs industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) is another way to assess its profitability. Digital Realty Trust's ROIC is 1.53, and its WACC is 7.37, indicating a need for improvement in capital efficiency.
Conclusion
Despite its financial condition being relatively poor and its profitability fair, Digital Realty Trust (DLR, Financial) stock is believed to be modestly undervalued. For more detailed financial information about Digital Realty Trust, you can check out its 30-Year Financials here.
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