In growth investing, methods that consistently find firms with solid and quickening financial momentum are in high demand. One method is described in Louis Navellier's "The Little Book That Makes You Rich," which simplifies the process into eight basic rules. These rules center on earnings revisions, surprises, sales and earnings growth, widening margins, solid cash flow, earnings momentum, and high returns on equity. The aim is to find stocks where business fundamentals are not only getting better, but are improving at a quickening rate, a traditional sign of possible market leaders. A recent filter using these ideas has identified Ubiquiti Inc (NYSE:UI) as a notable candidate for more detailed review.
Fit with the "Little Book" Rules
Ubiquiti's latest financial results match well with Navellier's growth method. The firm shows notable strength in several important areas, pointing to a strong business direction.
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Positive Earnings Revisions & Surprises: Analyst outlook is very favorable. The average EPS estimate for the next quarter has been increased by 45.82% over the past three months, a major sign of confidence in short-term potential. Also, Ubiquiti has a flawless history of beating estimates, reporting four straight positive earnings surprises with an average exceedance of 34.82%.
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Solid Sales and Earnings Growth: The firm is showing strong top and bottom-line increase. Year-over-year revenue growth is 38.19%, while quarterly sales increased 35.84%. More notably, earnings growth is even stronger, with EPS rising 86.56% over the last year and 70.18% in the most recent quarter. This difference points to not only more sales, but more profitable sales.
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Widening Profitability and Solid Cash Flow: A key rule in the method is widening operating margins, which shows efficient scaling. Ubiquiti’s operating margin increased by a notable 26.41% over the last year. Along with this is a large rise in free cash flow, which grew by 4,551.46% year-over-year, giving the firm significant financial room.
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Positive Earnings Momentum and High ROE: The method looks for acceleration, not just increase. Ubiquiti’s current quarterly EPS growth of 70.18% is faster than the growth rate from the same quarter a year prior (65.22%), showing positive momentum. Lastly, the firm produces a very good return on equity of 87.50%, showing highly effective use of shareholder money.
Fundamental Condition and Valuation Setting
An examination of Ubiquiti’s wider fundamental picture supports the story from the specific filter. The firm receives a good overall fundamental score of 7 out of 10. Its advantages are especially focused in areas important to growth investors:
- Notable Profitability: With an ROE of 87.5% and a return on invested capital of 78.69%, Ubiquiti leads its Communications Equipment industry. Its operating margin of 35.09% is also one of the industry's highest.
- Very Sound Financial Condition: The firm has no debt and has a strong Altman-Z score of 68.42, pointing to very low bankruptcy risk and excellent solvency.
- Solid Growth Direction: Both past and expected growth rates are strong. Analysts forecast future EPS and revenue growth to speed up to 25.61% and 21.50% per year, in that order.
The main point of caution, as is common with high-growth stories, is valuation. Ubiquiti sells at a high level with a P/E ratio of 74.02 and a forward P/E of 52.67, which is high compared to the wider market. The investment idea, then, depends on the firm's capacity to keep performing well to justify its valuation.
For a complete look at these measures, you can see the full fundamental analysis report for UI.
Summary
For investors using a method like the one in "The Little Book That Makes You Rich," Ubiquiti Inc makes a strong argument. It clearly passes the main quantitative filters for earnings momentum, revision, surprise, and high-quality growth. The firm’s perfect performance is seen in rising cash flow, widening margins, and top-tier returns on capital. While the high valuation requires notice and adds risk, the basic fundamental momentum matches exactly with the method's aim of finding firms in a strong growth period.
This review of Ubiquiti came from a filter based on Louis Navellier's approach. To see other stocks currently passing this growth-oriented filter, you can view the complete list here: Little Book That Makes You Rich Stock Screen.
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Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented should not be used as the sole basis for any investment decision. Investors should conduct their own due diligence and consult with a qualified financial advisor before making any investment decisions.