Today, we delve into the financial landscape of Digital Realty Trust Inc (DLR, Financial), a company that has experienced a daily loss of 2.48%, a 3-month gain of 8.16%, and an Earnings Per Share (EPS) of 1.3. The question we aim to answer is: Is the stock modestly undervalued? Let's explore the valuation analysis to uncover the answer.
Introduction to Digital Realty Trust
Digital Realty Trust Inc (DLR, Financial) is a leading global provider of data center, colocation, and interconnection solutions. With over 300 data centers across five continents, the company offers a range of services from retail co-location to "cold shells" for hyperscale cloud service providers. As of September 27, 2023, Digital Realty Trust (DLR) is trading at $116.84 per share, with a market cap of $35.40 billion. According to our GF Value, the fair value of the stock stands at $156.85, suggesting that it may be modestly undervalued.
Understanding the GF Value
The GF Value is a unique measure that estimates the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. Our GF Value suggests that Digital Realty Trust (DLR, Financial) is modestly undervalued. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Examining Financial Strength
Investing in companies with low financial strength can result in permanent capital loss. Therefore, it's essential to review a company's financial strength before deciding to buy shares. Digital Realty Trust's cash-to-debt ratio of 0.01 ranks worse than 86.99% of 730 companies in the REITs industry, suggesting a poor balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Digital Realty Trust has been profitable 10 over the past 10 years, with an operating margin of 13.39%, which ranks worse than 87.83% of 690 companies in the REITs industry. The average annual revenue growth of Digital Realty Trust is 0.9%, which ranks worse than 50.24% of 637 companies in the REITs industry. The 3-year average EBITDA growth is -8.9%, which ranks worse than 72.39% of 536 companies in the REITs industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Digital Realty Trust's ROIC is 1.53 while its WACC is at 7.63.
Conclusion
In conclusion, Digital Realty Trust (DLR, Financial) stock appears to be modestly undervalued. However, the company's financial condition is poor, and its growth ranks worse than 72.39% of 536 companies in the REITs industry. To learn more about Digital Realty Trust stock, you can check out its 30-Year Financials here.
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