Equinix (EQIX -5.38%) has been an incredible value builder among real estate investment trusts (REITs) over the years. The company, which specializes in the operation, leasing, and management of data centers across the globe, has outperformed the S&P 500 by over 50% over the past decade.
Being a top performer with a massive global presence means share prices for Equinix are at a premium. The company's current price-to-FFO, a common metric used to understand a company's valuation, currently sits at 47.5 times. Considering 20 time to 30 times is considered a reasonable range for the price-to-value, it's clear Equinix is extremely expensive as it sits today. But being expensive doesn't always mean it's not a worthwhile buy.
Stellar results have led to premium pricing
Equinix started in 1998 as a Silicon Valley start-up and has since grown over the 21 years into the largest data center REIT by market cap and one of the largest global data center providers in the world. Today, Equinix has ownership or interest in 237 data center facilities in 27 countries and five continents.
Its global reach and high-quality portfolio are only one aspect of its allure for investors. It's the company performance that really shines. Equinix has achieved 75 consecutive quarters, or 18 years, of consistent revenue growth. And unlike in other commercial real estate sectors, the pandemic proved to be a profitable opportunity for Equinix as it drove increased demand for data facilities.
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This has helped the company sustain its strong historical growth, with impressive earnings this year. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) are up 7% year over year, and adjusted funds from operations (AFFO) are up 7%. In 2020, revenues grew 8% year over year, and according to Q3 2021, revenues are on track for another 10% to 11% year-over-year increase.
To boot, the company is also extremely well-positioned financially, with a low net leverage ratio of 4.0 times and $3.3 billion in liquidity.
Long-term trends support the future of Equinix
Data storage is becoming an increasingly important service within our technological society, a trend that will likely continue. As more products, platforms, and services move online, the need to store and protect their data increases. Fortune Business Insights recently conducted a historical study on the growth of data storage services to help predict growth into 2028. The study projects that global cloud storage will grow from $76.43 billion in 2021 to as much as $390.33 billion in 2028 at a compounded annual growth rate of 26.2%.
Given that Equinix is the largest operator of U.S. publicly traded REITs, and recent mergers for CyrusOne (CONE) and CoreSite leave Equinix and just one other data center REIT in the market moving forward, it's poised to hugely benefit from this growth. However, there are risks to consider with the company, including the fact that Equinix doesn't own many of its properties.
Other data center REITs can offer similar exposure to the marketplace for far less money, but they don't necessarily have the longstanding history and market exposure Equinix has to back them. It's those factors combined that for many, make Equinix an appealing buy regardless of how expensive it is today.
