Ubiquiti to Gain From Hi-Tech Product Offerings, Risks Stay
On Aug 13, we issued an updated research report on Ubiquiti Networks, Inc. UBNT.
Currently, Ubiquiti is focusing on three core technologies for optimal contribution toward its growth momentum — high-capacity distributed Internet access, unified information technology and next-gen consumer electronics for home and personal use. However, the company remains mired with various operating risks that impair its growth potential to some extent.
Healthy Growth Dynamics
Ubiquiti’s strategic product launches at disruptive prices has helped it beat rivals to a great extent. It has upgraded the UniFi ecosystem, which includes hotspot analytics and high-density WLAN improvements. It has also added new features to the AmpliFi product family.
During third-quarter fiscal 2018, the company’s revenues improved an impressive 14.6% year over year, marking the 11th consecutive quarter of top-line growth. Its Enterprise Technology segment sales surged 31.6% year over year on the back of solid demand for the entire UniFi product family. It believes that its global market share in Enterprise Technology will continue growing, fueled by increasing adoption of UniFi products, including switches, security gateways and cameras.
This apart, the company believes that strong investments in R&D, inventory and operations will help it expand the addressable market and maintain its dominant foothold in the industry. It spends significantly toward R&D activities for developing innovative products and state-of-art technology in order to expand its addressable market and remain at the helm of networking technology. Ubiquiti believes that its new product pipeline will help to increase average selling prices for high performance, best value products. Ubiquiti maintains a competitively priced network and proprietary network communication platform that is extremely well-equipped to meet end-market customer needs.
The stock has gained 1.3% compared with 4.2% growth for the industry in the past three months.
Risks
Political and economic instability on account of geographically diverse scale of operations has the potential to distort Ubiquiti’s earnings picture and remains a major cause of concern. The company operates in an extremely price-competitive environment, which includes big multinational wireless telecom players, service providers and newly established companies. It operates in enterprise WLAN, solar, video surveillance, wireless backhaul and machine-to-machine communications markets, which are highly competitive in nature and add to its concerns. Longer operating histories, greater brand recognition, larger customer bases and significantly greater resources of competitors add to the company’s woes. As a result, it needs to maintain competitive selling prices while keeping production costs at check and enhance its product offering. Moreover, this dynamic market is characterized by rapid technological changes, evolving standards, frequent product introductions and short product life cycles. Consequently, the company faces high R&D costs for technologically obsolete products.
Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock.
Key Picks
Better-ranked stocks in the industry include Ribbon Communications Inc. RBBN, Clearfield, Inc. CLFD and QUALCOMM Incorporated QCOM. While Ribbon Communications sports a Zacks Rank #1 (Strong Buy), Clearfield and QUALCOMM carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ribbon Communications has a long-term earnings growth expectation of 12%. It beat earnings estimates in each of the trailing four quarters, the average being 168.1%.
Clearfield beat earnings estimates in each of the trailing four quarters, the average being 52.8%.
QUALCOMM has a long-term earnings growth expectation of 10.9%. It beat earnings estimates in each of the trailing four quarters, the average being 19.8%.
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