Ubiquiti Is Buying Back Shares Again, Is This A Bullish Sign?

Mar. 17, 2017 8:14 PM ETUbiquiti Inc. (UI)51 Comments
Grant Beaty profile picture
Grant Beaty
366 Followers

Summary

  • Ubiquiti recently announced it'd repurchased $50M in stock this quarter, and authorized $50M more. This represents 4% to 8% of the 25M share float.
  • I went through its old filings to get the most granular data on its old buybacks in order to judge their performance.
  • Using March 16th's closing price, past buybacks have a CAGR of 30% to 77%, with a weighted average of 46%. They almost double the general performance of the stock.
  • Bears should ask themselves why this time is different.

Note that the Motley Fool recently published a similar but less detailed article. I decided to go ahead and publish this one because I'm providing more detailed data than it is.

After a 6% earnings miss, Ubiquiti Networks' (NASDAQ:UBNT) PPS plunged as much as 25%. A month later, the company announced it'd used the entirety of its $50M share repurchase program, and authorized another $50M. While it's easy to see this as a bullish sign, the company has been regularly buying back its shares since August 2012 (less than a year after its IPO). Are these buybacks simply habit, or do they signal insider knowledge of future PPS increases? In order to test this, I looked at UBNT's history of buybacks and how they've performed.

To do so, I went through its old SEC filings and found average repurchase prices and date ranges (given in months or quarters). I then computed CAGR using the average price and date of each reported purchase, as well as a weighted average CAGR. The results are below:

CAGR on 3/16/2017
Mean date Shares PPS Cost $52.44
Total/Avg 12,376,894 $23.34 $288,871,312.84 45.75%
8/16/2012 2,179,900 $8.88 $19,357,512.00 47.32%
9/15/2012 992,014 $11.93 $11,834,727.02 38.96%
10/16/2012 371,665 $11.72 $4,355,913.80 40.39%
11/15/2012 657,700 $11.16 $7,339,932.00 42.92%
12/16/2012 957,771 $11.86 $11,359,164.06 41.88%
11/15/2014 529,779 $28.29 $14,987,447.91 30.28%
5/16/2015 665,718 $29.59 $19,698,595.62 36.58%
8/15/2015 1,872,469 $33.79 $63,270,727.51 31.96%
11/15/2015 1,074,749 $34.12 $36,670,435.88 38.05%
2/15/2016 1,765,523 $28.32 $50,000,000.00 76.70%
5/15/2016 765,328 $37.99 $29,074,810.72 47.17%
6/15/2016 544,278 $38.44 $20,922,046.32 51.36%

The spreadsheet I used to calculate these results as well as links to the source (SEC filings) is here.

UBNT's buybacks have performed quite well, with a weighted average CAGR of $45.75%. While these results are impressive, they don't signal good timing and insider knowledge unless they outperform the stock's general performance.

Would an investor following UBNT's buybacks outperform one who simply invested at regular intervals? To test this, I computed the returns from investing $100 in UBNT every day since the IPO. I then computed the returns from investing that same amount of money uniformly at buyback prices. The result was 105% returns for the naive strategy versus 193% returns for the buyback strategies.

If I'm right and UBNT's PPS recovers in coming quarters, these numbers will look even better (e.g. if the PPS hits $60 on May 15th, the weighted average buyback CAGR would be 52.3%).

Does UBNT spend more on buybacks when they'll achieve higher returns? To test this I scatter plotted buyback shares and money spent vs. CAGR. There were perhaps weak correlations.

Conclusion

UBNT's buybacks have outperformed the stock by almost 100%. Therefore, there is substantial evidence these buybacks represent good timing and insider knowledge. As such, the current buyback program should be seen as a bullish sign.

This article was written by

Grant Beaty profile picture
366 Followers
I am a software developer who focuses on analyzing and investing in technology.

Disclosure: I am/we are long UBNT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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