Why this heavily shorted ASX 200 share could be a buy: expert

While the company's short position has inched up to 10%, one top broker is tipping an 80% upside for its stock.

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Key points

  • The Megaport share price has dumped 60% year to date while its short interest has crept up to 10%
  • However, brokers and experts alike are generally bullish on the stock, with some tipping it as a buy with 80% upside
  • One such expert believes the company has addressed previous growth challenges, which are now priced into its stock

It's been a rough year for the share price of S&P/ASX 200 Index (ASX: XJO) tech stock Megaport Ltd (ASX: MP1).

Not only has it dumped 60% year to date to trade at $7.67, but the company's short position has been on the up and up.

Megaport's short position had leapt to 10% as of The Motley Fool Australia's latest weekly short-selling breakdown. As my colleague James noted, short-sellers' eyes might have been caught by valuation concerns and weakness in the tech sector.

But not all are bearish on the ASX 200 tech share. Indeed, some experts are tipping the stock as a buy, while others are suggesting it could offer more than 80% upside.

Let's take a closer look at what might be going right for the embattled short target.

Is ASX 200 tech share Megaport a buy right now?

The future could be bright for the Megaport share price, with some experts flagging it as a buy.

The company uses software-defined networking to provide cloud connectivity and on-demand data networking globally.

The tech share has been sold off alongside the S&P/ASX 200 Information Technology Index (ASX: XIJ) this year. The sector has dumped 37% year to date amid rising interest rates.

Its tumble might have brought about a buying opportunity, however.

Market Matters author and Shaw and Partners portfolio manager James Gerrish thinks the stock is a buy, saying growth challenges facing the company are likely already priced into its share price. He continued, telling Livewire:

Obviously, they've had to refocus on how they sell their product. They had some issues with the level of growth they were achieving. I think they've addressed that. They're providing a little bit more clarity and information to the market and I think that's a positive. 

The company's average revenue per customer grew 24% last financial year. Its major focus will be growing towards profitability this fiscal year.

But not all are bullish on its stock. Investors Mutual portfolio manager Lucas Goode said, via Livewire:

I think with Megaport they've got a really interesting product, but it's one that, while it should have really high incremental margins, they've really struggled to generate the returns that you would expect because it's actually a very difficult sales cycle.

Fortunately, top brokers seem more inclined to agree with Gerrish over Goode.

Goldman Sachs has a buy rating and a $10.30 price target on Megaport shares, implying the ASX 200 tech stock has a 37% upside.

And Citi is even more hopeful, tipping the stock as a buy and slapping it with a $13.90 price target, The Motley Fool Australia recently reported. That marks a potential 81% upside.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs and MEGAPORT FPO. The Motley Fool Australia has recommended MEGAPORT FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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