Ubiquiti Stock May Have More Upside

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.

There Are Several Things In Favor Of UI Stock

UI is up 70% so far this year, but can still run more given its good fundamentals and the fact that it is 29% below its 52-week high.

Recent UniFi Wi-Fi 7 and G6 camera launches command premium pricing, enhancing operational efficiency and driving margins. Conservative capital allocation is shown by debt repayments and a new $500 million share repurchase program. Despite a 28.1% stock pullback over the last month due to profit-taking, year-to-date performance remains positive, fueled by rising demand in the Enterprise Technology segment and continuous product innovation in the UniFi ecosystem.

And Its 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 29% below its 52-week high.

Below is a quick comparison of UI fundamentals with S&P medians.

*LTM: Last Twelve Months

But Be Wary Of The Risks

While UI stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. 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.

If you want to see more details, read Buy or Sell UI Stock.

UI Is Just One of Several Such Stocks

You could also check out:

1. BWX Technologies (BWXT)
2. Nextpower (NXT)
3. Coeur Mining (CDE)

We chose these stocks using the following criteria:

1. Greater than $2 Bil in market cap
2. High operating or (cash flow from operations) margins
3. No instance of very large revenue decline in the past 5 years
4. Low-debt capital structure
5. 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%

Portfolios Beat Stock Picking

Individual picks can be volatile but staying invested is what matters. A diversified portfolio helps you stay the course, capture upside and reduce downside

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, 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. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.