Watch Out: Barbarians At The Gate For Ubiquiti Networks (UBNT)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Ubiquiti Networks ( UBNT) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Ubiquiti Networks as such a stock due to the following factors:

  • UBNT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $26.7 million.
  • UBNT has traded 1.6 million shares today.
  • UBNT traded in a range 293.2% of the normal price range with a price range of $3.15.
  • UBNT traded above its daily resistance level (quality: 3 days, meaning that the stock is crossing a resistance level set by the last 3 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on UBNT:

Ubiquiti Networks, Inc., together with its subsidiaries, provides various networking products and solutions for service providers and enterprises in the United States and internationally. The stock currently has a dividend yield of 0.6%. UBNT has a PE ratio of 14.2. Currently there are 4 analysts that rate Ubiquiti Networks a buy, 1 analyst rates it a sell, and 6 rate it a hold.

The average volume for Ubiquiti Networks has been 702,800 shares per day over the past 30 days. Ubiquiti has a market cap of $2.5 billion and is part of the technology sector and telecommunications industry. The stock has a beta of 2.15 and a short float of 29.4% with 10.26 days to cover. Shares are down 4.9% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Ubiquiti Networks as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and growth in earnings per share. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year.

Highlights from the ratings report include:
  • UBNT's revenue growth has slightly outpaced the industry average of 1.7%. Since the same quarter one year prior, revenues rose by 10.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Although UBNT's debt-to-equity ratio of 0.18 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 6.58, which clearly demonstrates the ability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Communications Equipment industry and the overall market, UBIQUITI NETWORKS INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • UBNT's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 26.24%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

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