The world's top value investors love it when their best stocks ideas are selling at bargain-basement prices. For those rarified investors, companies offering fire-sale prices become no-brainer buys. So regular investors like you and me would do well to emulate the masters and look at companies offering a buy-one-get-one sale on their stocks.
Wireless communications specialist Ubiquiti Networks
Ubiquiti Networks snapshot
|Market Cap||$1.1 billion|
|Revenues (TTM)||$354 million|
|1-Year Stock Return||(27.3%)*|
|Return on Investment||82.9%|
|Dividend and Yield||N/A|
|Est. 5-Year EPS Growth||25%|
Source: FinViz.com. *Ubiquiti went public on Oct. 14, 2011. N/A = not applicable; Ubiquiti doesn't pay a dividend.
Let's just make sure there's nothing more seriously wrong with it before you go and plug it into your portfolio.
A dirty word
Counterfeit products are problem for every industry. The fashion industry seems particularly prone to the ethically challenged. Handbag maker Coach
Of course, counterfeiting happens with equipment makers, too. Ubiquiti's rival Cisco
For Ubiquiti's wireless networking gear, it might not be so apparent to customers that what they're buying isn't the real thing. Its former distributor, Kozumi USA, was accused earlier this year of stealing source codes and proprietary designs for its popular and profitable AirMax line of products to sell in emerging markets. Although it moved to sue the company for the infringement, it seems the level of counterfeiting was beyond what even the company suspected, as it saw fourth quarter revenues fall $3 million sequentially to $59 million, or down 5% from third quarter results.
The problem is so large that revenue could fall as much as 35% next quarter. That news sent Ubiquiti's shares plummeting more than 40%, as the counterfeiting was widespread, hitting every region hard but for North America. That's key because three-quarters of Ubiquiti's revenues are derived from international sources, and the faked AirMax products are half the total.
Analysts had hoped Ubiquiti's strong response to the counterfeiting issue last quarter would have showed tangible results, but with management offering up the reduced guidance, it seems the issue is deeper and more far-ranging than previously believed. No doubt it will be shored up, but Ubiquiti's results will be hampered for some time.
While it had been enjoying expanding growth prior to the problem, this could give rivals like Cisco, Alvarion, or Motorola Solutions
Ubiquiti ran into issues last year when one of its distributors was caught selling equipment to Iran in violation of U.S. laws. Now one of its distributors is stealing its codes and designs. Since it relies almost exclusively on distributors for its sales, management needs more controls in place to prevent a recurrence of debilitating problems.
As this continues to unfold, and until Ubiquiti gains control of the counterfeit products, it's hard to recommend its shares at the moment. I'm not quite so fatalistic as Wall Street is, though, but I think it will take another quarter or two before we see a turnaround. Let me know in the comments section below when you think Ubiquiti Networks will turn into the real deal.
Have half a mind
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