Ubiquity bounces back

UBNT is now quite a bit above where it was just before Andrew Left at Citron started grousing on Sept. 18. It’s now back to its mid-August highs, so now it’s about as high as it’s ever been.

At first I thought that there must have been a recent earnings report, but that’s not coming until Nov. 9.

3 Likes

It’s been coming back steadily. Investors familiar with the company could see that the Citron report was full of incorrect and weak arguments. There was the initial shock of the report that drove the price down to 47.78, but the price started to rebound pretty quickly as investors realized that the report was off base. Pera also announced an additional $100M buyback on top of the $50M buyback announced in early September, so the company was actively buying back stock on the cheap and driving up the price.

The risk of fraud was considered high so a lot of follow on shorts jumped on because of the Citron name and now the short interest is about 11M, up very significantly in the last month. Approximately 49% of the float is now short (only considering outstanding shares minus Pera’s shares and not including institutional ownership) so there has also been some short squeezing that has put upward pressure on the stock. I think those that were really concerned about material fraud and did some research, would have seen that the risk was not significant. See my posts below that describe this in more detail:

http://discussion.fool.com/why-i-bought-more-ubnt-32844489.aspx

http://discussion.fool.com/ubnt-citron39s-focus-on-cash-32849760…

We are getting close to the all time high of 67.80, but even at today’s price of 66.50, we are still trading at a forward PE ratio of a little over 16 and the company is forecasting to grow earnings around 30% this year. I think looking back, the stock price was bound to come back for the following reasons:

  • a strong balance sheet (lots of cash)
  • strong growth
  • the company buying back $150M in stock with a history of good capital allocation
  • the realization that the Citron report did not make sense and artificially drove the price down
  • Pera’s focus on delivering good products at a low cost
  • the strong community that drives a lot of the demand
  • the launch of upcoming products like LTU
  • analysts that keep their expectations low making it easier to exceed those expectations
  • low stock comp meaning no share dilution
  • Pera improving as a CEO leading to improved governance and supply chain management
  • Stronger internal controls with previous material weaknesses being remediated as seen in the 10K issued in late August (which passed KPMG’s SOX audit)
  • Expectations of continued Enterprise growth which is now 50% of the company revenue
  • Cheap valuation
  • Shorts unwisely following Citron without understanding the company and the business model leading to a very high short interest, which can be squeezed

Congrats to those that were not scared off by the Citron report. The stock is up 39% from the low in a little over a month, so it has been a fun ride.

17 Likes

There was the initial shock of the report that drove the price down to 47.78, but the price started to rebound pretty quickly as investors realized that the report was off base. Pera also announced an additional $100M buyback on top of the $50M buyback announced in early September, so the company was actively buying back stock on the cheap and driving up the price.

How much of the stock appreciation do you think the company stock buy-back program has contributed?

How much of the stock appreciation do you think the company stock buy-back program has contributed?

There is really no way to know this. We don’t even know how much the company bought, but we should get this detail as part of the 11/9 earnings release. As of 9/18, we know that Pera already used up $22.4M of the newly authorized $50M buyback, so available buy back at that time was $127.6M. If he bought back aggressively while the price was cheap and got a $57 average price, he would have bought back 2.2M shares.

However, we also know the short interest went from 7.5M on 9/15 to 11.0M on 10/13, so there were 3.5M shares “sold” that would have more than offset the potential 2.2M bought back by the company (assuming they used their full buyback). http://www.nasdaq.com/symbol/ubnt/short-interest

Obviously other buyers came in to offset the high shorting and drove the price up. A lot of this buying could have been motivated by the fact that the company was buying back shares which would not make sense if they were a fraud as Left claimed. The nice thing with all these shares short, is that they eventually need to cover and “buy” back the stock which should put upward pressure on the stock.

7 Likes

and maybe some shorts have begun covering.

That would help explain why UBNT was going up even during down days.

No way to know, the short interest from NASDAQ is already 2 weeks old when it’s released.

I still think we could see a little bit of a short squeeze if the quarterly results are any good - see last quarter and the 20% jump.

LNS