Equinix (EQIX) is a global interconnection and data center company. It offers premium data center colocation, interconnection, and exchange and outsourced IT infrastructure services through its International Business Exchange (or IBX) data centers.
Price-to-earnings ratio of peer companies
The overall price-to-earnings (or PE) ratio of the Internet Software & Services subsector of the Technology Select Sector SPDR ETF (XLK) is 44.41x. The PE ratio of Equinix (EQIX) is significantly higher at 73.97x.
Analysis of Equinix’s PE ratio
Equinix is trading at a PE ratio more than four times the XLK average and 66% more than its peer sector average. In the last ten years, Equinix stock price has increased by a phenomenal 622%, from $36.66 to $264.91. The company’s revenues have also increased by more than 1,000%, from $221.06 million to $2.44 billion in the same period.
Equinix’s diluted earnings per share in the last 12 months is -$4.07 and has declined 320.20% in the period. Due to the significant growth in revenues and the share price, Equinix’s PE ratio has touched a high of 4794.50x with a median ratio of 84.17x in the period between 2002 and 2015.
The technology companies covered in this series have significantly higher PE ratios than peer companies in the same industry. This is due to their high growth in revenues and share prices over the last ten years. Share prices for these companies have generally seen exponential growth compared to their growth in EPS (earnings per share).
Normally, companies with high PE ratios don’t generate shareholder value in terms of dividends paid. This is true even for stocks discussed in this series, since none of the companies have paid dividends to shareholders in the past ten years.