DigiCo Infrastructure REIT (ASX:DGT): Assessing Valuation After Major Contract Wins and Upgraded Guidance

DigiCo Infrastructure REIT (ASX:DGT) has attracted attention after it secured major contracts with enterprise and government clients. The company also announced a faster Sydney expansion and achieved ‘Certified Strategic’ status for its flagship data centre.

See our latest analysis for DigiCo Infrastructure REIT.

The recent burst of contract wins and the flagship data centre's new 'Certified Strategic' status sent DigiCo's share price sharply higher, with momentum building as revenue visibility improves. Although some gains have eased in recent sessions, investor enthusiasm signals a potential turn in sentiment for the short and long term as demand for data infrastructure accelerates.

If the surge in DigiCo’s data centre business has you scanning for other opportunities, now is the perfect time to explore the market’s fastest-growing names through our fast growing stocks with high insider ownership.

With DigiCo Infrastructure REIT now trading at a sizeable discount to analyst targets despite major wins and upgraded guidance, investors face a key question: is this an overlooked buying opportunity, or is future growth already reflected in today’s price?

Price-to-Sales Ratio of 9.5x: Is it justified?

DigiCo Infrastructure REIT’s shares last closed at A$2.95, while its price-to-sales (P/S) ratio stands at 9.5x. This compares to peer averages and market ratios, raising questions about whether the current market price accurately reflects the company’s growth potential and sector position.

The price-to-sales ratio measures how much investors are willing to pay for each dollar of a company’s revenue. It is especially relevant for real estate investment trusts like DigiCo, where earnings can fluctuate due to capital investments and depreciation. In sectors experiencing rapid revenue growth, such as data infrastructure, a higher P/S multiple can be justified if investors anticipate substantial top-line expansion.

DigiCo’s P/S ratio of 9.5x is slightly below its peer average of 10x. This indicates it may be reasonably valued relative to companies with similar business models. However, when compared to the broader Global Specialized REITs industry average of 8.2x, DigiCo trades at a notable premium. The estimated fair P/S ratio for DigiCo is 4.4x. If this level is realized, it could trigger a significant market re-rating toward more modest growth expectations.

Explore the SWS fair ratio for DigiCo Infrastructure REIT

Result: Price-to-Sales Ratio of 9.5x (OVERVALUED)

However, slowing revenue momentum or industry-wide valuation resets could challenge DigiCo’s bullish story and affect future share price performance.

Find out about the key risks to this DigiCo Infrastructure REIT narrative.

Another View: Discounted Cash Flow Model Signals Upside

While the market may see DigiCo’s shares as expensive based on its current price-to-sales ratio, our DCF model suggests a different story. DigiCo is trading around 46% below our estimate of fair value using this approach, which signals that the stock could be significantly undervalued if long-term cash flow projections are realized. Is this a hidden opportunity, or are market concerns justified?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out DigiCo Infrastructure REIT for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own DigiCo Infrastructure REIT Narrative

Feel free to dive into the numbers and shape your own perspective. Building a personal view can take less than three minutes. Do it your way

A good starting point is our analysis highlighting 2 key rewards investors are optimistic about regarding DigiCo Infrastructure REIT.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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