Ubiquiti Networks Inc (UBNT) Is Under SEC Scrutiny, Should Investors Be Worried?

The WiFi product maker's accounting practices are suddenly under public scrutiny.


Ubiquiti Networks Inc (NASDAQ:UBNT) investors got cold feet today, sending shares tumbling nearly 25% in Tuesday’s trading session. The reason? The WiFi product maker disclosed that the accounting practices at Ubiquiti Networks are being investigated by a little group we like to call the Securities and Exchange Commission (SEC).

Robert Pera, Ubiquiti Networks CEO

On February 13, 2018, the SEC issued subpoenas to Ubiquiti Networks and certain of the Company’s officers requesting documents and information relating to a range of topics, including metrics relating to the Ubiquiti Community, accounting practices, financial information, auditors, international trade practices, and relationships with distributors and various other third parties. Ubiquiti is in the process of responding to the requests and intends to cooperate fully with the SEC.

Whether this is the result of a simple oversight or a more serious problem, investors will have to wait and see.

The subpoenas marks the second setback for the company’s stock this month. On Feb 8, shares of Ubiquiti Networks tumbled 14% on the back of mixed fiscal second-quarter results.

“Ubiquiti’s December-quarter results were mixed as upside in both segments was largely offset by a one-time write-off associated with the FrontRow product offering. UBNT would have beaten EPS ests excluding the $18.6M charge. While we were pleased by solid growth across Ubiquiti’s two main segments, guidance for F3Q18 and FY18 underwhelmed, and we would have expected a better outlook as several new product offerings continue to ramp,” BMO analyst Tim Long commented. “Ubiquiti expects F3Q revenues of $245-260M, below our/consensus estimates of $260M/$255M at the midpoint. Gross margins are expected to remain stable on a sequential basis excluding the one-time charge, though expected EPS of $0.92-0.99 is below our $0.98 estimate at the midpoint. For FY18, management now expects both sales and EPS at the lower end of the previously guided ranges.”

Long rates UBNT a Market Perform with a price target of $63, which implies a 12% upside from current levels. (To watch Long’s track record, click here)

 

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