Ubiquiti Networks (NASDAQ:UBNT) recently reported fiscal 2019 second-quarter results, and shares have been soaring ever since. Over the past three years, the stock has risen by more than 300%.

Investors need not dismiss Ubiquiti after the impressive run, though, as it could have more left in the tank. Demand for the wireless network hardware and supporting software the company provides is on the rise, and a continuously evolving internet means the trend could continue for years to come.

Consistent sales mean even better profitability

Ubiquiti sells a multitude of connection-enabling and internet-connected devices, from routers and mobile network antennas to security cameras and LED lighting. The growth of mobile internet around the globe has provided a strong tailwind for Ubiquiti over the past few years, as the company's current fiscal year suggests.

Metric

Six Months Ended Dec. 31, 2018

Six Months Ended Dec. 31, 2017

YOY Change

Revenue

$590 million

$497 million

19%

Gross profit margin

46.1%

42%

4.1 p.p.

Operating expenses

$80.6 million

$55.4 million

45%

Earnings per share

$2.25

$0.29

N/M

Adjusted earnings per share

$2.50

$1.68

49%

Data source: Ubiquiti Networks. YOY = year over year; p.p. = percentage points.  

Revenue in the second quarter accelerated and rose 22% from a year ago, with a 6% decline in service provider sales easily offset by a 48% jump in enterprise technology sales. Gross profit margin in the second quarter was 45.6%, a big increase over the 38.6% from the year prior. Paired with an ongoing share-repurchase plan in which the company retired $34.7 million worth of its stock, adjusted earnings, which negate one-time tax items and stock-based compensation, rose 75%.

Management did express concern over tariffs resulting from the trade dispute between the U.S. and China. Tariffs are causing a near-term headwind that will bring gross profit margin down to a range of 42% to 45% on products sold, but over the long term the company expects to mitigate the problem and sees gross profit holding in the range of 45% to 50%.

A white box AmpliFi router by Ubiquiti.

An AmpliFi router by Ubiquiti. Image source: Ubiquiti.

But why Ubiquiti now?

Wireless internet continues to grow, and the new 5G mobile network is just starting to roll out. That global project will take years to complete and cost billions of dollars to piece together. Ubiquiti supplies some of the infrastructure hardware to make the transition to 5G possible, which helps explain the jump in enterprise technology. Plus, as 5G rolls out, consumer hardware could rebound to keep up with new network capabilities.

In the more immediate future, though, Ubiquiti has reiterated several times that it sees full-year revenue for the 12 months ending this coming June 30 at $1.1 billion to $1.2 billion, and it expects earnings per share of $4.00 to $4.80. Those figures would represent 8% and 59% increases, respectively, at the low end of guidance. However, low-end earnings could drop closer to $3.65 if the U.S.-China tariff situation isn't soon resolved. Nevertheless, the company would still be looking at a 45% bottom-line increase over last year.

As a result, Ubiquiti's 12-month forward expected price-to-earnings ratio comes in at 24.9. That's steep -- the S&P 500's forward P/E, for comparison, is currently 16.0 -- but a double-digit increase in profit margin makes it a reasonable price to pay.

Looking further down the road, Ubiquiti could have a lot more growth left as mobile networks continue to expand. With momentum at its back, this stock is worth consideration -- at least for investors who don't mind some volatility.