Ubiquiti Networks Riding High: Here's Why It Can Soar Higher

California-based global technologycompany, Ubiquiti Networks, Inc. (NASDAQ:UBNT) , has had a healthy run on the bourse with its stock price touching the 52-week high mark on Jun 8. Year to date, the stock has gained 25.6% to close at $39.81 during the regular trading session on Jun 21.

Underlying factors like robust sales, decent earnings history and sound financials have recently piqued our interest and we believe there are ample reasons for this stock to surge higher.

Business Model

Ubiquiti’s business model, which is highly flexible, has largely helped the company combat severe macroeconomic challenges. This has also allowed the company to establish a competitively priced proprietary network communication platform that has garnered solid popularity among customers. This in turn has resulted in impressive top-line and margin performance over the past few quarters.

In addition, the company is committed toward reducing its operational cost by using a self-sustaining mechanism for rapid product support and dissemination of information by leveraging on the strength of Ubiquiti Community. During the third quarter of 2016, non-GAAP gross margin increased 440 basis points year over year to 49.2%. The remarkable expansion in gross margin was attributable to an improved product mix, coupled with successful cost-cutting strategies and steady product pricing.

UniFi Products

Commercial success of UniFi products, namely, UniFi AC access points and UniFi Switch, has long been driving growth for the company. As a matter of fact, during the third quarter of 2016, the Enterprise Segment surged 72.6% driven by these products. Furthermore, the company has a proactive product launch drive that has been persistently supplementing core revenue growth.

Some of the notable products launched during the quarter include UniFi 8- and 16-Port Gigabit Switches and UniFi Video Camera G3 and G3 Dome cameras. Encouragingly, the company has commenced shipments of the scalable airFiber X with the airFiber NxN, in addition to introducing the airFiber AF 4X and AF-11X, which are full-duplex licensed spectrum backhaul radios with industry-leading spectral efficiency and TDD throughput.

E-Rate Funding

In addition, we believe the dominant position in the wireless broadband market and increasing foothold in the enterprise WLAN access point markets bode well for long-term growth. On a geographic basis, the company enjoys strong prospects in the EMEA and Asia region. More recently, the U.S. government’s strong focus on “E-Rate funding” program, that aids schools and libraries in obtaining affordable broadband, are expected to unlock more revenue sources for the company.

We believe Ubiquiti Networks is one of the safest bets for your portfolio, taking into consideration the immediate growth prospects. This is the right time for investors to take advantage of the recent sell-off and add this stock to their portfolio, to benefit from the impending price appreciation.

Ubiquiti Networks currently sports a Zacks Rank #1 (Strong Buy). Some other stocks to be considered by investors in the broader technology sector include Facebook, Inc. (NASDAQ:FB) , Clearfield, Inc. (NASDAQ:CLFD) and Sonus Networks, Inc. (NASDAQ:SONS) . While Facebook sports the same Zacks Rank as Ubiquiti Networks, Clearfield and Sonus Networks carry a Zacks Rank #2 (Buy).