Ubiquiti (UI)

Ubiquiti (UI)

Summary:  On Sale

Score:  19/20

MOS:  80%

Share Price:  $303

Sticker Price:  $1,527

Is Ubiquiti stock a good buy?

Ubiquiti is a technology company founded in 2003 and based in New York. They currently serve 200 countries and territories including but not limited to the US, Canada, Russia, Kenya, Libya, Nigeria, South Africa, Saudi Arabia, Israel, Iraq, Mexico, Costa Rica, Argentina, Brazil, India, China, Japan, Malaysia, Indonesia, Philippines, Australia, and New Zealand. They sell networking consoles, networking switches, Wi-Fi devices, security cameras, phone systems, door security, and accessories to businesses and consumers.

Ubiquiti is known as an IoT (Internet of Things) company. Essentially what IoT means are products that are connected via the internet. In this circumstance, Ubiquiti sells phone systems, security cameras, door security and other products which are all connected by the internet and may be configured or controlled by a website interface or mobile app.

Ubiquiti sells to business and consumers directly through their website as well as channel partner distributors including small and midsize businesses. One of the largest midsize distributors includes CDW Logistics, a subsidiary of CDW. This is important to know because leveraged sales distribution is a powerful growth strategy.

Some of their brands include UniFi, AmpliFi, EdgeMax, UISP, AirMax, AirFiber, GigaBeam, and UFiber. The most common product line is UniFi which is focused on home and business wired and wireless networking.

UniFi controller is a software that can either run on special hardware (UniFi Cloudkeys, UniFi Dream Machine) or can be installed on Linux, Mac, or Windows. This software manages all connected devices (access points, routers, switches, cameras, locks) and provides a single point for configuration and administration.

Here is what the news has to say.

This article from zacks.com states three important reasons why investors should consider Ubiquiti a good investment. Those three reasons include the consistent year over year EPS growth, consistent year over year free cash flow growth, and the promising earnings estimates.

This article from benzinga.com states that Ubiquiti’s revenue increased 50% over the last year. Due to the impressive revenue growth, the company has decided to introduce a $.60 per share dividend.

This article from zacks.com states that Ubiquiti’s earnings reports are expected to beat earnings estimates through the end of the year.

This article from cbtnuggets.com states that one of Ubiquiti’s competitors, Cisco, is better for fine-grain control over large networks but Ubiquiti is actually more user friendly and lower cost. 

This article from gartner.com summarizes that Ubiquiti’s products are a more cost effective option when compared to Dell’s products.

This article from newsfilecorp.com share’s some negative news investors should be aware of. A class-action lawsuit has been filed against Ubiquiti. The filed complaint alleges that Ubiquiti made materially false and/or misleading statements and/or failed to disclose that the Company had downplayed the data breach in January 2021. Long story short, hackers got full access to Ubiquiti’s AWS servers where they found root administrator passwords in a LastPass account. This created security vulnerabilities for customer accounts. 

Here is how Ubiquiti stacks up against the competition.

Ubiquiti (UI)

Summary:  On Sale

Score:  19/20

MOS:  80%

Share Price:  $303

Sticker Price:  $1,527

Revenue: $1.9B

 

Fortinet (FTNT)

Summary:  On Sale

Score:  13/20

MOS:  80%

Share Price:  $322

Sticker Price:  $1,621

Revenue: $2.9B

 

Cisco (CSCO)

Summary:  On Sale

Score:  12/20

MOS:  80%

Share Price:  $55

Sticker Price:  $280

Revenue: $48B

 

Juniper (UNPR)

Summary:  Overpriced

Score:  5/20

MOS:  1%

Share Price:  $27

Sticker Price:  $27

Revenue: $4.4B

 

Dell (DELL)

Summary:  Watch

Score:  10/20

MOS:  45%

Share Price:  $110

Sticker Price:  $200

Revenue: $94B

 

Now let’s take a look at the 4 M’s. A wise investor should always look past the numbers and look at the business.

MOS: The financials are impressive. A score of 19/20 and MOS of 80% are nearly as good as you can get. When you take a closer look at the Why within Tykr, you can see they are missing one point because the Equity Growth Rate is a 2 out of 3 as opposed to a 3 out of 3. 

Meaning: IoT popularity has grown over the last 10 years. Companies that make products that are connected to the internet and can be controlled by a website or mobile app will continue to be in demand. With Ubiquiti, they happen to sell popular products including security cameras, door access systems, Wi-Fi equipment, and networking equipment. These types of products will most definitely be in demand for businesses and consumers over the next 10 years.

Moat: There are a few competitors in the space that we need to pay attention to. Fortinet has proven to be a formidable player in the cyber security space and they continue to expand their product line and market share. Cisco has been a global powerhouse for networking and switches for decades. Dell has been a well known company for decades and they have expanded their product offering as well. All three competitors make good products but Ubiquiti is gaining market share by focusing on an easier to use product with a lower price point.

Management: Robert Pera founded Ubiquiti in 2003 and has been serving as CEO since. Prior to Ubiquity he worked as a hardware engineer for 2 years at Apple. Prior to Apple, he was still in school at the University of California. Although Pera has done a fine job building Ubiquiti to an 800 employee company, he is relatively young (born in 1978) and inexperienced compared to some of his competitors. With Fortinet, Ken Xie, CEO, was born in 1963 and has built and sold previous businesses in the past including Netscreen which sold to Juniper for $4B. Ken Xie also has his brother Michael Xie serving with him in the role of CTO. Together, they are an impressive team. Now today, Fortinet has over 8,000 employees. With Cisco, Chuck Robbins, CEO, was born in 1965, and has worked for multiple networking and communication companies including Wellfleet Communications, SynOptics, and Ascend Communications. He has served in multiple roles at various companies and has a wide breadth of knowledge in this industry. Today, Cisco has over 77,000 employees. Overall, there are circumstances where large companies grow too large and become too much to handle for founders. This is why you see a lot of new CEOs stepping into the top role so the founder can focus on activities more suitable to their skillset. In other words, operating and growing a large company is not easy. The best of the best typically have great experience doing this in the past. With Pera, we’ll see if he can continue to scale Ubiquiti or if he’ll need a seasoned CEO to step in and take the reins. A good CEO knows what they can and can’t handle on their own.

 

Now let’s take a look at the financials. A wise investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

Revenue (Found on the Income Statement)

2018:  $1B

2019:  $1.1B

2020:  $1.2B

2021:  $1.8B

Revenue significantly increased in 2021.

 

Net Income (Found on the Income Statement)

2018:  $196M

2019:  $322M

2020:  $380M

2021:  $616M

Net Income is increasing consistently which is a great sign.

 

EPS (Found on the Income Statement)

2018:  2.54

2019:  4.52

2020:  5.81

2021:  9.42

EPS increased consistently which is a great sign. The jump from 5.81 to 9.42 in 2021 was quite impressive.

 

Free Cash Flow (Found on the Cash Flow Statement)

2018:  $322M

2019:  $249M

2020:  $429M

2021:  $593M

Free Cash Flow has consistently increased. This is a great sign.

 

Total Assets (Found on the Balance Sheet)

2018:  $1B

2019:  $875M

2020:  $737M

2021:  $890M

Total Assets are increasing since 2019 and 2020 but they are still lower than 2018. This is okay.

 

Total Liabilities (Found on the Balance Sheet)

2018:  $706M

2019:  $776M

2020:  $1B

2021:  $888M

Total Liabilities have decreased since 2020 which is a good sign. We want to see liabilities declining.

 

Total Debt (Found on the Balance Sheet)

2018:  $484M

2019:  $495M

2020:  $659M

2021:  $532M

Total Debt has decreased since 2021 which is also a good sign.

 

Total Equity (Found on the Balance Sheet)

2018:  $315M

2019:  $99M

2020:  -$295M

2021:  $2M

Total Equity has increased since 2020 but it’s still relatively low compared to 2019 and 2018.

 

Ubiquiti’s financials are impressive. With a near perfect score and a high MOS, there is definite room for upside potential on this stock. With the meaning, we know IoT, especially around physical security, will be needed over the next 10 years. With the moat, we do need to pay attention to companies like Fortinet, Cisco, and Dell. All three companies have significantly more revenue and market share than Ubiquiti. Right now, it appears that Ubiquiti has an easier to use product for a better price when compared against Cisco and Dell. This is a good sign today but it doesn’t mean Cisco and Dell can’t innovate their products and optimize prices. With the management, Robert Pera has built an impressive company. His short tenure at Apple was certainly a great influence on product development at Ubiquiti. As you browse their website you can quickly see the streamlined simplistic designs in all of their products. This further emphasizes the drive to deliver easy-to-use products to their customers. Aside from the 4 M’s, the pending class-action lawsuit is also worth paying attention to. Can a lawsuit cripple a business permanently? In most cases, no. This might simply be a slap on the wrist. There are plenty of great companies that have experienced cyber security breaches through the years. The best companies use these events as opportunities to improve. For example, Facebook, LinkedIn, and Adobe have all experienced security breaches in the past and they’ve since made upgrades to their cyber security standards.

If you like hardware tech as well as IoT and are interested in a company that is influenced by the user friendliness of Apple products, then Ubiquiti is worth a look.

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.