On Thursday, JPMorgan updated its outlook on GDS Holdings (NASDAQ: NASDAQ:GDS), a leading data center provider. The firm increased the price target to $7.50, up from the previous $7.00, while maintaining a Neutral rating on the stock.
The revision follows GDS Holdings' first quarter 2024 results, which aligned with expectations, and the company's unchanged full-year 2024 guidance for revenue, adjusted EBITDA, and capital expenditures.
According to JPMorgan, the China business of GDS Holdings has begun to show early signs of improvement, particularly with artificial intelligence-related data center move-ins in the first quarter of 2024. However, the speed of recovery in the region remains uncertain.
The management of GDS Holdings has indicated that they will continue to prioritize working through the existing backlog. They plan to stay cautious regarding capacity expansion in China, with goals to improve EBITDA margins and generate free cash flow in the coming years.
Demand for GDSI, the international arm of the company, has been on the rise from both Chinese and international customers. This has led management to fast-track expansion plans in various locations, including Hong Kong, Singapore/Johor/Batam, and Japan, and to increase the initial round of capital raising for GDSI.
The report also noted a dilution in GDS Holdings' stake in GDSI, from 56.1% to 52.7%, due to the capital increase. JPMorgan expressed a belief that the market might show concern over the possibility of further dilution of GDS Holdings' stake in GDSI, especially if additional capital is raised within the next six to twelve months to support aggressive expansion plans.
In conclusion, JPMorgan has slightly adjusted its model for GDS Holdings and reaffirmed its December 2024 price target of $7.50, while still recommending a neutral stance on the company's shares.
InvestingPro Insights
As investors digest the latest analysis from JPMorgan on GDS Holdings, a closer look at the company through the lens of InvestingPro data reveals a nuanced financial landscape. The company's market capitalization stands at a modest $1.56 billion, reflecting its position in the competitive IT services industry. Despite this, the company trades at a low Price/Book multiple of 0.61, which could signal an undervaluation relative to its assets, according to InvestingPro Tips.
However, it's worth noting that GDS Holdings is not profitable over the last twelve months, with a negative P/E ratio of -7.11, and analysts do not expect profitability within this fiscal year. The company's stock has also experienced significant price volatility, with a 13.22% drop over the last week, yet it has seen a strong return of 18.32% over the last month, highlighting the high-risk, high-reward nature of the investment.
For investors seeking a deeper dive into GDS Holdings, InvestingPro offers additional insights, with a total of 14 InvestingPro Tips available for the company. These tips provide a comprehensive analysis of the stock's performance and potential. To gain access to these insights and to enhance your investment strategy, consider using the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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