When reviewing a deep value screen like Magic Formula® Investing (MFI), it always piques the interest to discover a company that has 5-year compound annual revenue growth of 34% and operating income growth of 112%!
Nevertheless, these kinds of stocks DO appear, and when they do they can frequently deliver HUGE gains, as investors benefit from the “double play” of a return to a more reasonable valuation combined with continued earnings growth can easily deliver enormous gains in a relatively short amount of time.
Value investors might recognize this setup as the Shelby Davis “Double Play”. Davis used this “growth-at-a-bargain-price” strategy to turn $50,000 into over $400 million over a 45 year period.
So, now you can see why Ubiquiti Networks (UBNT) spiked my interest when it recently showed up in MFI!
Of course, the key question is not what past growth is, but can future growth approximate it? Let's examine the company, why the stock sells reasonably cheap at present, and what the future prospects are.
Equipment For Next-Generation Wireless Networks
Ubiquiti sells wireless networking equipment. It classifies its products into two groups: Service Provider Technology and Enterprise Technology, based on the targeted end customer.
Service Provider Technology is targeted at (you guessed it), service providers (think AT&T (T)) and generates about 71% of sales. It consists of the airMAX, airFiber, and EdgeMAX lines:
Enterprise Technology (29% of sales), targeted at business usage, consists of the UniFi, UniFi Video, UniFi VoIP and mFi product lines. The UniFi lines are integrated wifi, video surveillance, and voice systems. mFi is a line of network-enabled devices with hardware sensors, allowing remote control of things like building temperature and power consumption.
