We live in an increasingly digital world. But every bit of data floating around in cyberspace is ultimately housed in physical data centers.
And there are a LOT of data centers – over 8,000 spread across the world, each one taking an average of 100,000 square feet. So it’s no surprise that data centers are a $342 billion market in 2023, and estimated to hit $410 billion by 2027. And that’s before accounting for the impact of AI, which is said to require entirely new data center infrastructure.
Today’s daily stock pick is a company that does not operate these data centers itself – but sells vital equipment and infrastructure that these centers need to function. It is a growth stock that has been impressively outperforming the industry benchmarks and recently crushed analyst expectations in its latest earnings.
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Vertiv Holdings Co. (VRT)
VRT provides data centers with a variety of solutions ranging from power and cooling to IT infrastructure and solutions.
In its FY2022 earnings report, the company missed its cash flow and earnings guidance on the back of soaring costs amid high inflation – a situation that naturally worried investors.
However, its recent first-quarter earnings proved that those worries may be completely unfounded. While VRT had initially provided guidance for a negative free cash flow of $50–$100 million, its first-quarter figures showed a positive $25 million in adjusted free cash flow – causing management to raise its FY2023 earnings guidance.
Should those earnings be accurate, that means VRT is currently trading at only 12 times earnings – far too cheap for a growth stock, especially considering VRT is consistently outperforming industry benchmarks.
For instance, VRT’s expected sales growth is almost 5x the industry average while its asset utilization ratio (dollars earned per every dollar in assets) is almost 33% higher than the industry average.
In sum, VRT has just dispelled any short-term worries about its trajectory and is trading very cheaply based on its latest 2023 earnings estimates – making it a stock investors should be paying close attention to.
To your wealth,
Felix @ Ace of Investing