Ubiquiti Networks stock return
Hardware networking stock Ubiquiti Networks (UBNT) fell 8.2% in the first few trading days of May 2019. The stock fell 5.7% on May 9 to close trading at $156.42. The stock is currently trading 97% above its 52-week low of $79.25 and 11% below its 52-week high of $174.95.
The stock has generated substantial investor wealth over the years. Ubiquiti stock has risen at a compound annual growth rate of 60.4% in the last three years and 36% in the last five years. So what has driven Ubiquiti’s stock higher?
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Revenue and earnings growth
Ubiquiti Networks’ sales have risen from $321 million in 2013 to $1.01 billion in 2018, which indicates a growth rate of 26% annually. Sales are expected to rise by a CAGR (compound annual growth rate) of 9% in the next three years.
Ubiquiti’s earnings per share rose by 20% annually in the last five years and are expected to grow at an annual rate of 21% in the next five years. The stock is trading at a forward PE multiple of 32.4x in 2019.
Is the stock overvalued?
Ubiquiti stock looks overvalued considering the PE multiple. Ubiquiti’s revenue growth is declining in the next few years. Ubiquiti has a market cap of $11 billion, which is 9.3x its 2019 sales.
The markets are uncertain and poised for a correction. UBNT stock has had a stellar run in 2019 and gained 57.6% this year. If and when the markets correct, Ubiquiti stock might sink lower due to its lofty valuation.