Is It Time To Buy Ubiquiti Stock?
We think Ubiquiti (UI) stock might be a good investment candidate. Why? Because you get strong margin, low-debt capital structure, and strong momentum – with room to run as the stock is meaningfully below its 52-week high. You might question the sharp sell-off in the last 10 days due to the earnings miss, but markets often overreact, and such sell-offs create attractive buy points.
There Is A lot Working For UI Stock
Despite the recent sell-off, UI is up 64% so far this year. It can still run more given its good fundamentals and the fact that it is 31% below its 52-week high. The company has an enterprise-focused UniFi platform and a direct-to-consumer model, which offers higher margins and cost efficiencies. It is capitalizing on the Wi-Fi 7 transition with new products like the UniFi U7 access point. With minimal debt and strong free cash flow, UI trades at a forward P/E of ~39x. While higher than peers, UI’s scalable model and market leadership in networking tech justify the premium.
The Fundamentals Look Good
- Long-Term Profitability: About 16.9% operating cash flow margin and 29.8% operating margin last 3-year average.
- Strong Momentum: Currently in the top 10th percentile of stocks in terms of “trend strength” – our proprietary momentum metric.
- Revenue Growth: Ubiquiti saw revenue growth of 36.8% LTM and 17.5% last 3-year average, but this is not a growth story
- Room To Run: Despite its momentum, UI stock is trading 31% below its 52-week high.
Below is a quick comparison of UI fundamentals with S&P medians.
| UI | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Communications Equipment | – |
| PS Ratio | 11.9 | 3.1 |
| PE Ratio | 41.4 | 23.1 |
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| LTM* Revenue Growth | 36.8% | 6.1% |
| 3Y Average Annual Revenue Growth | 17.5% | 5.4% |
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| LTM* Operating Margin | 33.7% | 18.8% |
| 3Y Average Operating Margin | 29.8% | 18.2% |
| LTM* Op Cash Flow Margin | 21.9% | 20.5% |
| 3Y Average Op Cash Flow Margin | 16.9% | 20.1% |
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| DE Ratio | 0.5% | 21.3% |
*LTM: Last Twelve Months | If you want to see more details, read Buy or Sell UI Stock.
While UI stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown to assess the risk.
Risk Quantified
The stock fell about 72% during the inflation shock, 40% in the Covid pandemic, and around 37% in the 2018 correction. Even with strong fundamentals, big sell-offs hit hard. Smaller downturns still meant losses north of 35%. It shows that no matter how solid a stock looks, sharp market drops can take their toll.
But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read UI Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
UI Is Just One of Several Such Stocks
Not ready to act on UI? Consider these alternatives:
We chose these stocks using the following criteria:
- Greater than $2 Bil in market cap
- High operating or (cash flow from operations) margins
- No instance of very large revenue decline in the past 5 years
- Low-debt capital structure
- Strong momentum
A portfolio that was built starting 12/31/2016 with stocks that fulfil the criteria above would have performed as follows:
- Average 12-month forward returns of nearly 15%
- 12-month win rate (percentage of picks returning positive) of about 60%
A Multi-Asset Portfolio Gives You Safer, Smarter Growth
Stocks soar and sink, but bonds, commodities and other assets balance the ride. A multi-asset portfolio keeps returns steadier and reduces single market risk.
The asset allocation framework of Trefis’ Boston-based wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’s strategy now includes Trefis High Quality Portfolio, which has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices