Half Year Data Center Stocks Analysis

by: Paolo Gorgo

It is always interesting to note how the same numbers can be analyzed from different angles.

We recently reported our half year scorecard for data center related stocks (which is showing, on average, very good returns), but we also noticed that both May and June were relatively weak for the sector, with half and the majority of stocks in the red in those two months, respectively.

Worth asking the question: has a peak already been reached in the sector?

Let's try to analyze these data in a different way.

Q1 was definitely very strong, with only one company reporting a negative result, and most players delivering two-digit returns (click to enlarge pictures):

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There is no doubt that the acquisitions of Navisite and Terremark (both made at a 30% plus premium) contributed to these outstanding numbers in Q1, especially for cloud computing related companies.

Here are the same numbers, organized by performance:

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Rich Miller, at Data Center Knowledge, recently had an update of data center stocks performance in Q2 (although we track some different companies, most of names are obviously in common):

The industry’s only IPO of 2011 turned out to be the best performing stock for the second quarter. Interxion, which went public on Jan. 29, ended the first quarter at its IPO price of $13. But in the second quarter, the European hosting and data center specialist saw its shares rise to $15.14, a gain of 16.5 percent. Here’s a look at our Data Center Investor quarterly update for the three-month period ending June 30:

Colocation companies Internap and Equinix each had double-digit gains for the quarter. Equinix has moved back above $100 a share, and has now regained nearly all of the ground lost in a sharp selloff last October. The three publicly-traded data center REITs [Digital Realty Trust, DuPont Fabros and CoreSite] were next, improving by 4 to 6 percent on the quarter.

There is little doubt that Q1 was a much better, in absolute terms, quarter than Q2, both for the number of companies reporting positive results and the percentage returns. Let's now try to monitor when each individual stock reached its best performance in the year, using historical prices at month end (and assuming such an analysis makes sense):

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Most stocks achieved their best performance (since the beginning of the year) at the end of May.

Assuming it is possible to analyze trends, it seems that network neutral stocks (Equinix, Interxion and TeleCityGroup) are on a positive trend, as they have either just achieved their best result in 2011 or are very close to it (Equinix). All REITs had their peak performance in May (as they all showed some signs of weakness in June), while cloud computing seems to be slightly less “trendy”, lately.

Curious to know which month represented the worst performance for data center related stocks? Here is a quick summary, with exact performances for each stock:

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Disclosure: I am long EQIX.