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Let’s talk about the popular Ubiquiti Networks, Inc. (NASDAQ:UBNT). The company’s shares received a lot of attention from a substantial price increase on the NASDAQGS over the last few months. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Ubiquiti Networks’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Is Ubiquiti Networks still cheap?The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Ubiquiti Networks’s ratio of 37.27x is trading slightly above its industry peers’ ratio of 33.89x, which means if you buy Ubiquiti Networks today, you’d be paying a relatively fair price for it. And if you believe Ubiquiti Networks should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Ubiquiti Networks’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Ubiquiti Networks?Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. However, with a negative profit growth of -16% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Ubiquiti Networks. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? UBNT seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on UBNT, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on UBNT for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on UBNT should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Ubiquiti Networks. You can find everything you need to know about Ubiquiti Networks in the latest infographic research report. If you are no longer interested in Ubiquiti Networks, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.