Why Ubiquiti Rocketed 25% Higher Today

Key Points

• Ubiquiti absolutely crushed its fiscal-fourth-quarter earnings estimates.

• The company has successfully paid down a large portion of the debt it took on in the wake of the pandemic.

• With a restored balance sheet, management raised the dividend and announced a new repurchase program for the first time in years.

• 10 stocks we like better than Ubiquiti ›

Shares of Ubiquiti (NYSE: UI) had rocketed 25.7% on Friday as of 11:47 AM ET.

The company, which makes a variety of wireless broadband equipment and access points, reported fourth-quarter earnings this morning. Results crushed analysts' expectations, thereby appearing to justify Ubiquiti's high valuation.

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Ubiquiti quietly goes about its business

Ubiquiti doesn't disclose much beyond what it has to and doesn't host earnings calls with sell-side analysts anymore, given that founder and CEO Robert Pera owns some 93% of the company's shares outstanding.

Still, the numbers the company did disclose this morning were impressive. Revenue rose 49.6% to $759.2 million, while adjusted (non-GAAP) earnings per share surged 103.4% to $3.54 per share. Both figures absolutely crushed analysts' expectations.

Some may have been skeptical that Ubiquiti could justify its valuation, which now sits around 43 times earnings based on the fiscal year that just ended. However, these kinds of growth numbers could justify such a valuation if the company can keep it up.

Additionally, Ubiquiti just capped off its fiscal year in which it generated about $628 million in free cash flow, which allowed the company to pay down a significant amount of its debt. Ubiquiti decided to take on debt to buy up inventory after the shortages it experienced during the pandemic, but demand moderated afterward amid high inflation and interest rates. So Ubiquiti had stopped repurchases and dividend increases over the past couple of years as it directed cash to pay down that significant pandemic-era debt.

Fortunately, it appears net debt is now down enough that the company felt comfortable announcing a 33% increase in its quarterly dividend to $0.80, along with a new $500 million share repurchase program, in conjunction with earnings today.

Image source: Getty Images.

Ubiquiti is expensive, but its low float makes it interesting

While Ubiquiti's stock isn't "cheap" by any means, there is an interesting dynamic here with Robert Pera owning so much of the company. Since the public float is only about 7% of all shares outstanding, if Ubiquiti continues repurchasing stock, that could create upward pressure on the share price merely due to a lack of sellers. The dynamic could eventually interest meme stock traders.

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Billy Duberstein and/or his clients have positions in Ubiquiti. The Motley Fool recommends Ubiquiti. The Motley Fool has a disclosure policy.