The 3% dividend yield from Cisco makes it a decent game for conservative investors. But for investors looking for a faster-growing game in the busy network industry, Ubiquiti Networks (NASDAQ: UBNT), which pays no dividend and has risen 22% this year, could be a better option for four simple reasons.
1. It's one of the growing WLAN players
Ubiquiti mainly sells wireless local area network (WLAN) products for service providers and business customers. Unlike larger WLAN players such as Cisco, Ubiquiti focuses on emerging and unattended markets with its UniFi family of access points, switches, gateways and IP cameras for enterprise customers and their airMAX and EdgeMAX products for service providers. .
That niche strategy boosted Ubiquiti's WLAN market share from 4.3% to 5.3% between the third quarter of 2016 and 2017, according to IDC. That makes Ubiquiti one of the top three WLAN players, along with Cisco and Huawei, which increased its market share annually.
Those gains came at the expense of latecomers such as Aruba of Hewlett-Packard Enterprise and Brocade-Ruckus of Broadcom.
2. It will benefit from the smart home revolution
Zion Market Research estimates that the global smart home market could grow from $ 24.1 billion in 2016 to $ 53.5 billion in 2022. That growth should boost demand for enterprise-class home WiFi solutions.
That's why Ubiquiti introduced AmpliFi, a $ 312 package of two automatically configured mesh antennas and a router that offers enterprise-class WLAN speeds without "dead zones" for home users. Following its launch, Gadget Review stated that the AmpliFi mesh network system offers "enough performance and scope to break all the speed records we have in the books".
But Ubiquiti lost control of the initial launch of AmpliFi earlier this year when a last-minute redesign and high shipping costs resulted in a loss of profitability during the second quarter. But if AmpliFi gains ground with conventional consumers and Ubiquiti fulfills its promise to extend the line to a family of products, the company could obtain a new flow of consumer income to complement its core business market.
Cisco offers mesh network solutions for enterprise customers, but it still does not offer a conventional home package like AmpliFi. Until that happens, Ubiquiti should enjoy an early advantage in space with rivals such as Netgear and Belys Linksys.
3. Greater growth of the upper and lower line
Ubiquiti's revenues increased 30% to $ 865.3 million last year, as its net income grew 21% and its diluted EPS increased 24%. That growth was supported by strong demand for its UniFi, airMAX and EdgeMAX products. For the current year, Ubiquiti expects its revenues and profits to increase by 18% and 25%, respectively, despite the hiccup mentioned above in its launch of AmpliFi.
Those growth figures seem much stronger than Cisco's 2% sales decline and 10% of profits last year. Revenue from Cisco's switching and routing businesses, which accounted for almost half of its top line, respectively, fell 5% and 4% due to the commoditization of both aging markets.
For the current year, analysts expect Cisco revenues and profits to increase 1% and 3% respectively, with the growth of its stronger wireless and security businesses offsetting lower demand for routers and switches.
That change is encouraging, but it does not fully justify Cisco's rally this year, which seems partly driven by investors seeking income in a low-yield market and the excitement of lower corporate tax rates that allow it to repatriate its mountain of cash abroad.
4. Reasonable ratings
Ubiquiti sells 22 times more than profits and 20 times the profits advanced, compared to the industry average P / E of 37 for communication equipment suppliers. Cisco has a final P / E of 20 and a direct P / E of 16.
Cisco has lower multiples, but it also has an anemic growth and a market limit that is almost 36 times higher than the $ 5.3 billion valuation of Ubiquiti. Therefore, Ubiquiti probably has much more room to run than Cisco, if it plays its cards well.
But mind the pitfalls...
Ubiquiti is an interesting niche player in the networking market, but investors must recognize the risks. The expansion of wireless cloud networking platforms, such as Cisco's Meraki, could accelerate Ubiquiti's growth in the enterprise market.
AmpliFi may not find a foothold if the smart home market fails or conventional consumers refuse to upgrade their existing home WiFi networks. Therefore, Ubiquiti is much riskier than Cisco, but it could offer much higher rewards in the long term.
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