Fools,
Recently, I realized just how bad I am investing in tech hardware companies. Virtually all but a few of these companies get dominated by a strong competitor, get commoditized or get disrupted.
Many years ago, I got hammered investing in Juniper and Sycamore. More recently, I’m losing with Skyworks (not so badly, because I bought a lot on the recent drop) and Infinera (bought a lot a few years ago in the $4 - $6 range).
When I think about it, I’d have been a lot better off not investing in such companies or just putting those investment dollars in an index fund, which makes me wonder why I’m even invested in Ubiquity Networks.
From their business description:
Ubiquiti Networks develops high-performance networking technology for service providers and enterprises. Our technology platforms focus on delivering highly advanced and easily deployable solutions that appeal to a global customer base in underserved and underpenetrated markets. Our differentiated business model has enabled us to break down traditional barriers such as high product and network deployment costs and offer solutions with disruptive price-performance characteristics. This differentiated business model, combined with our innovative proprietary technologies, has resulted in an attractive alternative to traditional high-touch, high-cost providers, allowing us to advance the market adoption of our platforms for ubiquitous connectivity.
My general summary for this:
- High quality - low price strategy
- Easy to setup & use
- No Sales Reps - Enables higher margins
- Disruptor - Plays in the areas not interesting to the big players - but could disrupt them in future
- Secular shift to wireless needs
- Pera owns 60+%
What about the numbers?
Revenue is growing nicely. Here are the sales figures with QoQ growth rates:
Rev Mar Jun Sep Dec
2011 51.2 67.6 79.2 87.8
2012 91.7 94.9 61.5 74.9
2013 83.2 101.2 129.7 138.4
2014 148.3 156.0 150.1 153.1
2015 147.5 145.3 151.4 161.9
2016 167.4 185.7 204.8 **205.0**
Grth Mar Jun Sep Dec
2012 79.2% 40.4% -22.3% -14.7%
2013 -9.3% 6.7% 110.8% 84.8%
2014 78.4% 54.1% 15.7% 10.6%
2015 -0.6% -6.9% 0.9% 5.7%
2016 13.5% 27.8% 35.3% **26.6%**
**Bold** is the guidance midpoint.
Adjusted earnings are growing nicely…
AEPS Mar Jun Sep Dec
2011 0.13 0.18 0.23 0.27
2012 0.30 0.30 0.15 0.20
2013 0.24 0.33 0.46 0.48
2014 0.50 0.56 0.48 0.53
2015 0.47 0.50 0.51 0.58
2016 0.63 0.69 0.79 **0.76**
Q/Q Mar Jun Sep Dec
2012 131% 67% -35% -26%
2013 -20% 10% 207% 140%
2014 108% 70% 4% 10%
2015 -6% -11% 6% 9%
2016 34.0% 38.0% 55% **31%**
**Bold** is the guidance midpoint.
… with all geographies, even the previouslyanemqic South America, returning to growth:
NA Mar Jun Sep Dec SA Mar Jun Sep Dec
2011 15.8 22.0 24.9 21.4 2011 13.7 18.3 19.8 24.3
2012 16.6 25.3 20.4 12.1 2012 27.7 16.6 10.2 17.1
2013 21.1 31.3 37.4 32.6 2013 18.5 19.9 20.8 28.0
2014 29.2 43.3 53.6 54.1 2014 25.1 35.8 31.1 22.2
2015 45.7 44.3 53.2 57.1 2015 17.9 25.9 22.1 23.8
2016 57.8 71.1 74.2 2016 15.5 23.9 24.2
Grth Mar Jun Sep Dec Grth Mar Jun Sep Dec
2012 5.2% 14.9% -18.4% -43.5% 2012 101.8% -9.3% -48.4% -29.6%
2013 26.5% 23.8% 83.8% 169.0% 2013 -33.1% 20.3% 102.8% 63.9%
2014 38.6% 38.2% 43.1% 66.2% 2014 35.5% 79.3% 49.9% -20.5%
2015 56.6% 2.4% -0.6% 5.6% 2015 -28.7% -27.6% -28.9% 7.0%
2016 26.5% 60.5% 39.4% 2016 -13.5% -7.5% 9.3%
EMEA Mar Jun Sep Dec AP Mar Jun Sep Dec
2011 17.1 21.9 24.8 30.4 2011 4.5 5.4 9.6 11.8
2012 36.4 40.0 23.1 35.9 2012 11.0 14.1 7.8 9.8
2013 31.6 37.2 52.9 58.8 2013 12.0 12.8 18.6 19.0
2014 77.9 57.4 50.6 60.1 2014 16.2 19.6 14.8 16.7
2015 66.8 56.9 60.5 61.0 2015 17.1 18.2 15.5 20.0
2016 73.3 69.7 81.4 2016 20.9 21.0 25.0
Grth Mar Jun Sep Dec Grth Mar Jun Sep Dec
2012 112.4% 82.7% -6.6% 18.4% 2012 144.7% 160.3% -19.0% -16.9%
2013 -13.1% -7.0% 128.4% 63.8% 2013 9.5% -8.8% 139.0% 94.6%
2014 146.3% 54.5% -4.3% 2.1% 2014 35.2% 52.7% -20.7% -12.4%
2015 -14.3% -0.9% 19.6% 1.5% 2015 5.7% -7.1% 5.2% 19.9%
2016 9.7% 22.4% 34.5% 2016 22.2% 15.5% 61.0%
The balance sheet looks really good with $574 million in cash and $291 million in total liabilities. They’ve bought back quite a lot of shares too, reducing the amount from 88.5 million to 83.1 million over the past year.
The business is doing extremely well and the company’s books are in great shape. Guidance for next quarter shows nice growth too (although I care about the next few years).
So why did shares pop over 10% and quickly give it all back? I don’t know. But it could have something to do with the fact that the stock has almost doubled since its low this year. Maybe the move into the consumer space and Pera’s past difficulties on execution the past few years has created some uncertainty. It may also have something to do with the valuation, which is at its high end of its range (past two years), although it’s quite reasonable if you go a bit further back.
Month AEPS TTM EPS QoQ Gr Hi Lo Close P/E P/E Hi P/E Lo 1Yr. Peg
Mar-11 0.13
Jun-11 0.18
Sep-11 0.23
Dec-11 0.27 0.81 $23.04 $16.25 $18.23 22.5 28.4 20.1
Mar-12 0.30 0.98 130.8% $33.97 $17.33 $31.63 32.3 34.7 17.7
Jun-12 0.30 1.10 66.7% $35.99 $11.19 $14.25 13.0 32.7 10.2
Sep-12 0.15 1.02 -34.8% $15.26 $7.80 $11.90 11.7 15.0 7.6
Dec-12 0.20 0.95 -25.9% $13.15 $9.97 $12.14 12.8 13.8 10.5 0.74
Mar-13 0.24 0.89 -20.0% $16.66 $11.39 $13.72 15.4 18.7 12.8 -1.68
Jun-13 0.33 0.92 10.0% $20.89 $12.81 $17.54 19.1 22.7 13.9 -1.17
Sep-13 0.46 1.23 206.7% $37.40 $17.17 $33.59 27.3 30.4 14.0 1.33
Dec-13 0.48 1.51 140.0% $46.88 $33.61 $45.96 30.4 31.0 22.3 0.52
Mar-14 0.50 1.77 108.3% $56.85 $37.50 $45.45 25.7 32.1 21.2 0.26
Jun-14 0.56 2.00 69.7% $47.92 $30.50 $45.19 22.6 24.0 15.3 0.19
Sep-14 0.48 2.02 4.3% $50.00 $36.98 $37.53 18.6 24.8 18.3 0.29
Dec-14 0.53 2.07 10.4% $37.92 $26.98 $29.64 14.3 18.3 13.0 0.39
Mar-15 0.47 2.04 -6.0% $32.97 $25.67 $29.55 14.5 16.2 12.6 0.95
Jun-15 0.50 1.98 -10.7% $34.28 $25.50 $31.31 15.8 17.3 12.9 -15.81
Sep-15 0.51 2.01 -4.2% $37.10 $28.50 $33.89 16.9 18.5 14.2 -34.06
Dec-15 0.58 2.06 5.2% $35.96 $28.69 $31.69 15.4 17.5 13.9 -31.84
Mar-16 0.63 2.22 34.0% $35.00 $25.75 $33.27 15.0 15.8 11.6 1.70
Jun-16 0.69 2.41 38.0% $41.21 $32.06 $38.66 16.0 17.1 13.3 0.74
Sep-16 0.79 2.69 33.8% $54.73 $37.06 $53.50 19.9 20.3 13.8 0.59
====================================================================================
*Dec-16 0.76 2.87 39.3% $58.39 $33.29 $53.45 18.6 20.3 11.6 0.47*
We may see a lower price going forward. If the price goes down to the recent low valuation point, assuming they hit guidance, we’ll a price of about $33. If they hit the recent high valuation, the upside is to about $58. The average low valuation in each quarter over the last two years would get us a price of $37.88. Unless the valuation range changes, we’ll see a much better price before the end of the year.
Period **11.6** 13.2 20 **20.3** 25 30
Today $31.20 $35.51 $53.80 $54.61 $67.25 $80.70
Dec-16 $33.29 $37.88 $57.40 $58.26 $71.75 $86.10
The business prospects and optionality, combined with the secular trend of wireless connectivity make me pretty confident in the company. Additionally, and even more important, is the business model that is probably difficult to disrupt. Ubiquity has high quality, superior functionality, ease of use, low prices no sales reps and an owner with a lot of skin in the game.
Having seen the recent improvements in the business and consider Ubiquity’s prospects, we are unlikely to see us hit the lower end of the valuation range. But I wouldn’t be surprised if we did. Buyers and sellers are unpredictable. All of this considered, today’s price is short-term on the higher side and long-term inexpensive.
DJ