Growth investing strategies often look for companies not only growing, but doing so with increasing speed and high financial quality. One methodical way to approach this is described in Louis Navellier’s The Little Book That Makes You Rich, which simplifies the process into eight main rules centered on earnings revisions, surprises, sales and earnings growth, margin expansion, cash flow, and high returns on equity. The aim is to sort for stocks where fundamental business strength is both outstanding and getting better, indicating a possibility for sustained market gains. A recent filter using these ideas has identified Ubiquiti Inc (NYSE:UI) as an interesting option for investors using this method.
Matching the "Little Book" Requirements
Ubiquiti’s recent financial results fit well with the main filters of the Navellier-based filter. The company shows the strong mix of growth, profitability, and good momentum the strategy looks for.
- Positive Earnings Revisions & Surprises: Analysts have increased their earnings per share (EPS) estimate for Ubiquiti’s next quarter by more than 9% in the past three months, a notable upward change that points to better visibility and confidence. Also, the company has a flawless history of surpassing expectations, beating EPS estimates in every one of the last four quarters by an average of over 30%. Steady positive surprises frequently make analysts keep reassessing their future forecasts, starting a pattern of rising estimates.
- Strong Sales and Earnings Growth: Ubiquiti is achieving growth at a notable pace. Revenue jumped 36.8% over the last year, and sales in the newest quarter grew 33.3% compared to the same quarter a year earlier. More significantly, earnings growth is even more marked, with EPS increasing 87.8% year-over-year and speeding up to 61.7% growth in the most recent quarter. This quickening in earnings momentum is a vital part of the strategy, showing that growth is not only there but building.
- Increasing Profitability and Cash Flow: Genuine quality growth means turning higher sales into larger profits. Ubiquiti’s operating margin grew by almost 26% over the past year, demonstrating the company’s skill in managing costs as it gets bigger. Even more notable is the increase in free cash flow, which rose by over 537% in the last twelve months. High and increasing cash flow offers financial room and is a main sign of a business's soundness and longevity.
- Outstanding Returns: The strategy requires a high return on equity (ROE), and Ubiquiti performs remarkably on this measure with an ROE of 95.6%. This shows the company is very efficient at creating profits from shareholder capital, a sign of a well-run growth business.
Fundamental Soundness and Valuation Setting
An examination of Ubiquiti’s wider fundamental picture, as outlined in its detailed analysis report, supports the strength indicated by the filter. The company receives a very good rating for both profitability and financial soundness. Its excellent return metrics (ROE, ROA, ROIC) place at the highest in the Communications Equipment industry, and it has no debt, removing worries about solvency.
The main note of caution, as with many fast-growth companies, is in valuation. Ubiquiti sells at a high price, with a P/E ratio above 45. The growth rating is good, driven by the very strong past-year results, but analyst forecasts for future growth are more restrained, indicating a possible shift to a more usual growth rate. This sets up a typical growth-investing situation: investors are paying a high price for proven exceptional results, wagering on their continuation or lasting power.
A Beginning for More Study
Ubiquiti Inc offers a solid example of a stock that satisfies a strict, multi-factor growth filter built on recognized investment rules. It displays the earnings momentum, operational growth, and high returns that strategies like Navellier’s try to find early.
For investors wanting to find other companies that currently fit these "Little Book" requirements, the filter used for this study is open to the public. You can see the complete list of results and change the filters yourself here.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. The study is based on data and a set screening method; it is not a replacement for personal research or talking with a qualified financial advisor. Investing has risk, including the possible loss of the original amount invested.