The Nextdc Ltd (ASX: NXT) share price may have finished the day slightly lower, but there is significant upside potential for it as far as one leading broker is concerned.
According to a note out of Citi this morning, its analysts have retained their buy rating and increased the price target on the data centre operator's shares to $6.03 following the release of its full-year results yesterday.
Based on its current share price of $4.55, this implies potential upside of 33% for NEXTDC's shares.
Why is Citi bullish on NEXTDC?
In FY 2018 NEXTDC has provided conservative guidance of underlying EBITDA in the range of $56 million to $61 million.
Whilst this isn't a huge increase on its EBITDA of $49 million in FY 2017, it is important to understand that growth will be slower due largely to a lift in operating costs as a result of the opening of three new facilities.
Citi believes that this sizeable increase in capacity is due to strong demand from clients and notes that capacity additions are a leading indicator of revenue and profit growth.
All in all, the broker expects EBITDA growth to accelerate in FY 2019 as the company reaps the rewards of its investments. And I completely agree.
Should you invest?
I think NEXTDC is a standout investment on the ASX at the moment. Its shares may be expensive but I remain confident that its long-term growth potential more than justifies this premium.
In light of this, I would put it up there slightly ahead of Appen Ltd (ASX: APX) and Altium Limited (ASX: ALU) as my top tech pick on the market today.
