Upbeat view of NXT in today's FNArena Weekly Insights:...

Upbeat view of NXT in today's FNArena Weekly Insights:

Conviction Calls: Citi, UBS, Macquarie, Morgans and CS

One of the standout observations regarding prospects for local independent cloud data infrastructure builder NextDC ((NXT))  is the more analysts and other experts look into this company's fundamentals, the more positive views and assessments are being added in support of a stronger share price. I have mentioned NextDC before. If not on my regular TV appearances, or during my on stage presentations, then here in Weekly Insights. The last time was on April 12, see "NextDC: The Coming Of Age Of A Cloud Infra Story".

On a micro scale, management seems to be doing all the right things, plus some. Its latest move was to raise more debt than was intended. This, argue analysts, not only shows how eager investors are to be part of this emerging cloud data centres success story, it also serves as a clear message to the company's clients and competitors. NextDC means business. No shortage in attracting cash means management should now have sufficient room to leverage its talent and the company's buoyant business case.

Citi analysts certainly have taken such view, bumping up the price target to $5.18 from $4.40. Note that financial prospects in FY18 will be weighed down by the increased costs to serve additional debt. The offset is, of course, higher growth faster, which explains the increase in valuation and price target.

On a macro scale, and as I argued during my time on stage at the Australian Shareholders Association's (ASA) national conference in Melbourne last week, there is a general tendency for investors of all kinds to underestimate how far share prices can ultimately rise when carried by strong structural growth drivers such as is the case for NextDC.

The share price has rallied 132% since January 2015 (less than 29 months), so many investors would be asking questions about when this uptrend will come to an end, but fresh assessments like the one by Citi suggest it remains way too early to start focusing on what might go wrong. This makes NextDC's story similar to the ones witnessed at Corporate Travel ((CTD)), CSL ((CSL)), Treasury Wine Estates ((TWE)), and numerous others.

Sure, the poster boy for structural growth & innovation leadership, Domino's Pizza ((DMP)), is experiencing a life more difficult these days with the share price at a distinct distance from the $80 reached last year, but that was after rising from a mere $8 back in 2012. Most market watchers who don't like Domino's Pizza -pre or post 2016- because its Price-Earnings (PE) ratio steadfastly looks too high, don't like NextDC, Corporate Travel, CSL and the likes today.

Sad truth is, they all missed out on one of the most admirable, and profitable, growth stories in the Australian share market. And so has/does everyone who takes guidance from these misguided voices. I've said this many times before, and I shall point this out many more times in the years ahead: a PE ratio on its own tells you nothing. Even as most experts treat it that way. Yet another sad truth.

Returning back to NextDC: Citi rates the stock a Conviction Buy. King of the pokies, Aristocrat Leisure ((ALL)), is traveling a similar path. It's going to be interesting to find out whether its financial performance, scheduled for Thursday this week, can facilitate yet another leg upwards in an already impressive uptrend from circa $6.50 in early 2015. Yes, the shares are trading at more than three times that value today.

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