Wireless equipment player, Ubiquiti Networks, Inc. 's UBNT shares have charted a steady upward trajectory in the recent times, having appreciated 8.3% in the past year. This is in stark contrast to its industry , which has declined 6.1% on an average, over the same time frame.
Broadly speaking, Ubiquiti designs, manufactures and sells broadband wireless solutions globally. In fact, the company's shares have actually appreciated manifold when compared with the industry average over the last five years.
Let's dig in to find the company's economic moats and explore why it has been outperforming its peers consistently.
Ubiquiti's Community Forum
To begin with, the company stands out from its competitors as it has a unique business model and marketing strategy. Ubiquiti actually relies on community evangelism and word of mouth marketing, instead of using highly-paid sales persons. The company is committed toward reducing its operational costs by using this self-sustaining mechanism for rapid product support and dissemination of information by leveraging the strength of Ubiquiti Community.
Consistent R&D Outlay
Ubiquiti also spends significantly toward research and development activities for developing innovative products and state-of-art technology. The company regularly launches innovative products at a fraction of the cost of the competing firms. Its unique business model helps regulate a highly efficient R&D culture.
The company has impressive design capabilities, including hardware design and software design. The company's strategic product launches at disruptive prices have helped it beat rivals to a great extent.
Ubiquiti has by far the best operating margins among its peers, with consistent net margin expansion over the last five years. It competes with players like Cisco Systems, Inc. CSCO , the Aruba arm of Hewlett Packard Enterprise Company HPE , Brocade Communications Systems, Inc. BRCD and Huawei. Ubiquiti currently boasts a net profit margin of nearly 30%.
Robert Pera, Ubiquiti's founder and CEO, has long since maintained that his focus is on the long-term success of the company, and not on quarter-to-quarter earnings, revenues, or cost variations. He owns about 71% of the company.
Figures Don't Lie
In its last reported fiscal fourth-quarter 2017 results, Ubiquiti's revenues steered past the higher end of its guidance and also grew 23.1% on a year-over-year basis. Its adjusted earnings also rose 8.7% year over year. Refreshingly for a technology company, there is hardly any difference between its GAAP and non-GAAP earnings, due to a conspicuous lack of stock-based compensation.
Have a look at the company's bottom line trend over the past five years compared to the industry average.
The company also released optimistic guidance for fiscal 2018, with projected revenues of $1.0-$1.15 billion and earnings of $3.70-$4.30 per share. At the mid-point, this translates to earnings growth of about 30%. Currently, the Zacks Consensus Estimate for fiscal 2018 earnings is pegged at $3.40 a share on sales of $946 million. This indicates that the company's is positioned very well for the future.
We believe that Ubiquiti's strength basically comes down to disruptive price, performance and innovation. The company is simply selling its products for less because it has trumped its competitors with superior product design and also because it has been an extremely responsive company when it comes to adding features desired by competitors.
Ubiquiti currently has a Zacks Rank #3 (Hold).You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
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