Does Digital Realty Trust’s Global Expansion Signal an Opportunity After 16% Stock Slide?

• Curious whether Digital Realty Trust is trading at a bargain or an inflated price? Let’s dive into what the numbers and recent events might reveal about its true value.

• The stock has seen notable moves recently, rising 1.9% over the past week, but still down 4.2% for the month and 15.8% over the last year. These shifts hint at changing investor sentiment regarding both growth prospects and risk.

• Recent headlines covering major partnerships and continued investment in global data center expansion have dominated the news. These developments highlight the company’s positioning in a fast-evolving tech landscape, help explain the stock’s volatile performance, and are generating ongoing debate about what could come next.

• On our valuation checks, Digital Realty Trust scores a 3 out of 6, suggesting there’s more to the story beneath the surface metrics. We’ll walk through traditional valuation methods in a moment, but stick around for an even more insightful way to evaluate the stock before making any moves.

Digital Realty Trust delivered -15.8% returns over the last year. See how this stacks up to the rest of the Specialized REITs industry.

A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and then discounting those amounts back to today’s dollars. For Digital Realty Trust, this model uses adjusted funds from operations to forecast the company’s free cash flow performance over time.

Currently, Digital Realty Trust generates annual free cash flow of $2.02 billion. Analyst consensus projects steady growth, with free cash flows expected to reach nearly $3.70 billion by 2029. After five years, further growth assumptions are extrapolated based on historical trends and sector outlook. All cash flow projections are measured in US dollars.

Based on this analysis, the DCF model produces an estimated intrinsic value of $236.26 per share. Compared to the current market price, this suggests that Digital Realty Trust is undervalued by about 32.2 percent according to these assumptions.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Digital Realty Trust is undervalued by 32.2%. Track this in your watchlist or portfolio, or discover 920 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Digital Realty Trust.

The price-to-earnings (PE) ratio is one of the most widely used metrics for assessing the value of profitable companies like Digital Realty Trust. Since the company generates consistent earnings, the PE ratio helps investors quickly compare its share price relative to recent profits and spot any potential discrepancies in valuation.

However, a “normal” or “fair” PE ratio can fluctuate based on investor expectations about future growth and risk. Higher growth prospects typically warrant higher PE ratios, while greater perceived risks or uncertainties often lead to lower multiples. This context is especially important for companies operating in dynamic sectors such as data center REITs.

Currently, Digital Realty Trust trades at a PE ratio of 40.5x. This is higher than both the Specialized REITs industry average of 17.3x and its peer group average of 34.4x. At first glance, this premium suggests investors expect greater growth or lower risk than the broader sector.

Simply Wall St’s proprietary “Fair Ratio” offers a more tailored benchmark—in this case, 28x—by accounting for Digital Realty Trust’s unique combination of growth rates, profit margins, market capitalization, and industry risks. Unlike standard peer or sector comparisons, the Fair Ratio provides a more nuanced view that reflects the factors most relevant to this company’s long-term outlook.

Since Digital Realty Trust’s 40.5x PE is materially above the Fair Ratio of 28x, this suggests that the stock is overvalued on this metric, unless the company delivers considerably stronger growth than currently forecast.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 companies where insiders are betting big on explosive growth.

Earlier we mentioned that there’s an even better way to understand valuation. Let’s introduce you to Narratives. A Narrative allows you to craft your own investment story for Digital Realty Trust by connecting your view of the company’s future, such as revenue growth, profit margins, and risks, to a financial forecast and a fair value estimate, rather than relying solely on static ratios or models.

Narratives bring the numbers to life by blending your perspective with real financial assumptions. This approach shows you in real time how your forecast affects what the stock may be worth. This feature is user-friendly, accessible to anyone on Simply Wall St’s Community page, and trusted by millions of investors looking for smart ways to navigate changing markets.

Comparing your Narrative Fair Value to the current share price can help you decide if it is time to buy, hold, or sell. Because Narratives update automatically as fresh news and earnings come in, your analysis stays relevant. For example, one investor’s Narrative for Digital Realty Trust might predict a fair value as high as $199 if they expect AI-powered growth and strategic partnerships to pay off, while a more cautious view could lead to a much lower estimate if they see fierce competition and rising costs ahead.

For Digital Realty Trust, we offer an overview of two leading Digital Realty Trust Narratives:

• 🐂 Digital Realty Trust Bull Case

  Fair Value: $199.19

  Undervalued by approximately 19.6%

  Revenue growth forecast: 12.96%

  • Strong demand for data center capacity, strategic expansions, and sustainability efforts are forecast to drive revenue growth and profitability.

  • Analysts expect annual revenue to grow 11.5% over the next 3 years. However, profit margins are projected to compress due to increased costs and expansion efforts.

  • Main risks include rapid U.S. expansion potentially outpacing demand, rising interest rates affecting profitability, and intensified competition from other providers.

• 🐻 Digital Realty Trust Bear Case

  Fair Value: $110.45

  Overvalued by approximately 45.1%

  Revenue growth forecast: 7%

  • Industry tailwinds from AI and cloud growth drive near- and mid-term demand, with international and technological expansions supporting the long-term thesis.

  • Headwinds such as rising interest rates, intense competition (for example, Equinix, AWS, Google Cloud), energy costs, and overbuilding risks could limit upside and compress margins.

  • Valuation is seen as reasonable for now. If the price-to-FFO ratio rises much further without corresponding earnings growth, or if debt remains expensive, downside risks increase.

Do you think there’s more to the story for Digital Realty Trust? Head over to our Community to see what others are saying!

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.

Companies discussed in this article include DLR.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com