Vertiv Holdings’ (VRT) stock price has done well since going public in a SPAC merger in 2020. It has risen from around $12 a share to $109, pushing its market cap to over $40 billion and making it one of the best-performing companies on Wall Street.
Data center demand accelerates
Vertiv Holdings is an essential company in the technology industry ecosystem because of the products and services it manufactures.
Compared to popular companies like Nvidia and AMD, Vertiv is not a mainstream brand because it sells its products to data center firms like Microsoft, Amazon, and Alphabet. It also sells its products to companies in industries like telecom and industrial.
Vertiv owns some of the top brands in the industry. In addition to its eponymous brand, it owns products like Geist, Energy Labs, Avocent, and NetSure.
Some of its products are Uninterruptible Power Supply (UPS), which ensures that data centers and other tech equipment keep running when there is a power outage, power distribution, and industrial DC and AC systems.
It also sells products in thermal management, racks and enclosures, and monitoring and management. In addition, it provides its customers with software and other related services.
Vertiv’s business has grown well in the past few years, with its annual revenue rising from $4.43 billion in 2019 to over $6.8 billion in the last financial year. The trailing twelve-month (TTM) revenue has also jumped to over $7.2 billion.
This growth has happened mostly because of the ongoing demand for data center solutions in the US and other countries. A good example of this data center demand is Nvidia, whose revenue soared to over $30 billion in the last quarter.
Most importantly, Vertiv has moved from a loss-making company into one whose annual profits are rising. It moved from a $320 million annual loss in 2020 to a $500 million profit in the trailing twelve months.
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Revenue is growing
The most recent financial results showed that Vertiv Holdings’ revenue and order backlog is growing.
Its organic orders rose by 57% in the second quarter. Its net sales rose by 13% to $1.9 billion, while its operating margin rose by 510 basis points to 19.6%.
Additionally, the company decided to boost its forward guidance. It hopes that its quarterly revenue will be between $1.935 billion and $1.98 billion in Q3, representing a 12-16% revenue growth.
For the year, the company expects that its revenue will grow by between 12% and 14% to $7.59 billion and $7.75 billion. The operating profit for the year will be about $1.4 billion.
According to Yahoo Finance, analysts expect that its quarterly revenue will be almost $2 billion. They also expect that its annual revenue will grow to $7.7 billion this year followed by $8.7 billion in the next year.
Vertiv’s valuation consideration
Most analysts tracking Vertiv have a bullish rating on the stock. The most bullish are analysts from Mizuho, who upgraded the stock from neutral to buy. Others with a buy rating are from Jefferies, Evercore ISI, TD Cowen, and Goldman Sachs.
However, these analysts don’t see a significant upside from the current level. The average estimate for the stock is $109.25, a few points higher than the current $107.47.
A likely reason for this is the view that the company’s valuation is becoming stretched. Looking at its estimated sales and market cap, we see that the stock has a price multiple of 5.6, which is higher than the industry average of 1.50.
Vertiv also has a forward EV-to-EBITDA multiple of 27.7, which is also higher than the sector median of 11.75. These are huge numbers for a company whose growth is moderating.
Vertiv’s forward P/E ratio is 63.4, meaning that Nvidia, with its forward multiple of 48 is relatively cheaper.
Therefore, these numbers mean that Vertiv Holdings will need to continue delivering strong results that are higher than expectations. The next key catalyst for the stock will come out on October 23 when it publishes its financial results.
Vertiv Holdings stock analysis
VRT chart by TradingView
The weekly chart shows that the VRT share price has risen in the last five consecutive weeks, its longest streak on record. This rebound happened after the company bottomed at $62.30 on August 8 as stocks were crashing because of the Japanese yen carry trade unwind.
Vertiv shares have now retested an all-time high of $109.10, forming a double-top pattern, a popular bearish sign. In most periods, this pattern usually results in a deep retreat.
The stock has remained above the 50-week and 25-week moving averages. Therefore, there is a risk that the stock will suffer a harsh reversal ahead or after its financial results on Oct. 23. This bearish view will become invalid when it rises above $110.
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