What happened
Shares of Ubiquiti (UI 0.44%) were soaring in Friday trading, up 17% as of 1:33 p.m. ET.
The enigmatic Wi-Fi equipment maker reported its fourth-quarter and fiscal-year results this morning, which was apparently better than some investors had feared.
There aren't many investors following the stock, as it is only covered by one Wall Street analyst, and CEO Robert Pera owns about 93% of shares outstanding. But with the stock having been more than cut in half below its 52-week high, some may want to give this under-the-radar company a look on a potential rebound.
So what
In the quarter, revenue grew 10.8% over the prior year to $491.1 million, beating the lone analyst estimate of $483.3 million. But adjusted earnings per share of $1.73 came in slightly below the estimate of $1.80.
The outperformance was driven by Ubiquiti's enterprise products, which include switches, local access points, and smart-home and office products like security cameras. But its legacy service-provider equipment business for wireless internet service companies fell year over year, though it was up quarter over quarter.
In any case, the revenue beat seemed to assure the market that demand remained intact for Ubiquiti's low-priced products. Of note, during the last two years, Ubiquiti was hit by supply constraints and component inflation, but it didn't raise its prices to customers. So Ubiquiti's revenue and profit fell, leaving investors to wonder whether it was a supply or demand problem. And over the past year, management decided to invest heavily in more inventory so that the supply problems wouldn't happen again. That inventory build led to this year's massive decline.
The decision to not raise prices in an inflationary environment is likely a luxury only a CEO with a 90%-plus ownership stake can afford to make! But it appears that decision reinforced customer loyalty and fed the revenue outperformance. Though Ubiquiti's gross margins are still well below where they were prior to the pandemic, they seem to be slowly improving:
UI gross profit margin (quarterly) data by YCharts.
Now what
Ubiquiti is a hard company to figure out, as Pera no longer holds earnings calls, and the description of business results in the company's filings are quite minimal.
Still, with such high insider ownership, a highly profitable operating model, and signs of a gradual recovery, it appears that what few public shareholders are left were breathing a sigh of relief on Friday.
Assuming Ubiquiti can get back to its pre-COVID margins, the stock looks attractive, even after today's pop.
