Ubiquiti (UI): Evaluating Valuation After Strong Earnings, Dividend Hike, and New Buyback Announcement

Ubiquiti (UI) has drawn investor interest after reporting a strong fiscal first quarter, highlighted by a 33% year-over-year revenue jump and notable net income growth. The company also authorized an additional stock buyback and increased its dividend.

See our latest analysis for Ubiquiti.

Even with Ubiquiti’s big earnings beat and a fresh dividend boost, the market’s reaction has been intense. The share price dropped sharply in the past week, likely reflecting renewed caution about the company’s future earnings outlook. Still, anyone holding long-term has been handsomely rewarded, with a total shareholder return of nearly 97% over the past year and more than 150% in five years, showing strong momentum despite recent volatility.

If strong momentum and sudden reversals in tech stocks interest you, now’s the perfect moment to discover fast growing stocks with high insider ownership.

But with the recent selloff and strong year-to-date gains, the key question remains: Is Ubiquiti’s impressive growth already priced in, or could there still be a compelling buying opportunity ahead?

Price-to-Earnings of 52x: Is it justified?

Ubiquiti’s stock is trading at a price-to-earnings ratio of 52 times, much higher than industry averages. This suggests the market is factoring in premium expectations. This puts the last close price of $612.19 under the spotlight when compared to broader sector norms and peer groups.

The price-to-earnings (P/E) ratio measures how much investors are willing to pay for a dollar of company earnings. For a tech firm like Ubiquiti, a high P/E might indicate belief in sustained growth or margin potential, but it also heightens sensitivity to any earnings disappointments or shifts in sentiment.

At 52x, Ubiquiti’s P/E commands a significant premium to the US Communications industry average of 29.1x. This signals the market expects performance and profitability to keep surpassing competitors. However, peer group averages suggest this premium may be up for debate. Notably, compared to its peer average of 75.3x, Ubiquiti appears somewhat more moderately valued, offering some context for its elevated multiple.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Earnings of 52x (OVERVALUED)

However, looming risks include the stock’s sharp recent pullback and a price that is now well above analyst targets, which could challenge bullish expectations.

Find out about the key risks to this Ubiquiti narrative.

Another View: Discounted Cash Flow Tells a Different Story

While the price-to-earnings ratio makes Ubiquiti look expensive, our DCF model presents an even starker picture. According to our analysis, the stock trades well above its estimated fair value. This prompts investors to ask whether future earnings are truly strong enough to support today’s lofty price.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Ubiquiti for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 870 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Ubiquiti Narrative

If you see things differently or want a fresh perspective, you can dive into the numbers yourself and build your own view in just minutes. Do it your way

A great starting point for your Ubiquiti research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

Looking for more investment ideas?

Don't sit on the sidelines while smarter investment opportunities are just a click away. Use these powerful screeners to uncover high-upside stocks that others might overlook.

• Capitalize on industry breakthroughs by browsing these 32 healthcare AI stocks, which is driving innovation where medicine meets artificial intelligence.
• Secure potential long-term payouts with these 16 dividend stocks with yields > 3%, offering attractive yields for steady income growth.
• Ride the wave of digital transformation and spot early movers among these 82 cryptocurrency and blockchain stocks, companies reshaping financial technology and blockchain innovation.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com