Cisco vs. Ubiquiti: Which Networking Stock is a Better Buy?

NASDAQ: CSCO | Cisco Systems, Inc. News, Ratings, and Charts

CSCO – Because remote working is expected to continue for the foreseeable future, the demand for networking solutions is expected to rise markedly. So, networking giants Cisco (CSCO) and Ubiquiti (UI) should benefit. But which of these two stocks is a better buy now? Read more to find out.

Cisco Systems (CSCO) in San Jose, Calif., designs, manufactures and sells internet protocol-based networking and other communications and information technology products. In addition, it provides infrastructure platforms that include networking technologies for switching, routing, wireless, and data center products. In comparison, Ubiquiti Inc. (UI) develops networking technology solutions for high-capacity distributed Internet access, unified information technology, and consumer electronics. UI is based in San Jose, Calif.

Amid the COVID-19 pandemic, networking solutions were in high demand as people spent most of their time indoors and relied on smart gadgets for their work. This trend is expected to continue in the near term due to the accelerated pace of digitization and increasing adoption of network-based technologies. According to a report by Markets and Markets, the global network-as-a-service (NaaS) market is expected to grow at a 29.4% CAGR from 2021 to 2026. Consequently, both CSCO and UI should benefit.

CSCO shares have gained 3.4% in price over the past three months, while UI has returned 1.1%. Also, CSCO’s 22.2% price gains over the past nine months are higher than UI’s 20% returns. Furthermore, CSCO is the clear winner with 23.1% gains versus UI’s 10.7% returns in terms of year-to-date performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

CSCO acquired Socio Labs, Inc. on July 8. Jeetu Patel, the company’s executive vice president and general manager, said, “The acquisition of Socio Labs is another example of how Cisco is rapidly addressing the evolving needs of our Webex customers and continuing to execute on our vision of providing the most seamless, inclusive, engaging and intelligent platform for meetings and events.”

Several law firms have filed a class-action lawsuit against UI, alleging that it failed to speak fully and truthfully in its statements concerning a data breach. As a result, UI’s positive statements about its business, operations, and prospects were materially misleading and/or lacked a reasonable basis, the suit alleges.

Recent Financial Results

CSCO’s net revenue increased 8% year-over-year to $13.10 billion for its fiscal fourth quarter, ended July 31, 2021. The company’s non-GAAP operating income grew 10% year-over-year to $4.4 billion, while its cash flow from operating activities increased 18% year-over-year to $4.50 billion. Also, its non-GAAP EPS came in at $0.84, up 5% year-over-year.

UI’s net revenue increased 51.5% year-over-year to $477.90 million for its fiscal fourth quarter, ended June 30, 2021. The company’s income from operations grew 54.8% year-over-year to $182.8 million, while its non-GAAP net income increased 66.2% year-over-year to $154.90 million. Also, its non-GAAP EPS was $2.47, up 69.2% year-over-year.

Past and Expected Financial Performance

CSCO’s net income and EPS have grown at CAGRs of 798% and 196.4%, respectively, over the past three years. Analysts expect CSCO’s revenue to increase 6.1% in its fiscal year 2022 and 4.2% in fiscal 2023. The company’s EPS is expected to grow 6.5% in fiscal 2022 and 7% in fiscal 2023. Also, its EPS is expected to grow at a 6.5% rate per annum over the next five years.

In contrast, UI’s net income and EPS have grown at CAGRs of 46.4% and 57.4%, respectively, over the past three years. The company’s revenue is expected to increase 12.1% in its fiscal year 2022 and 7.7% in fiscal 2023. Its EPS is expected to grow 12.6% in fiscal 2022 and 6.6% in fiscal 2023. Also, UI’s EPS is expected to grow at a 23.9% rate per annum over the next five years.

Profitability

CSCO’s $49.82 billion trailing-12-month revenue is significantly higher than UI’s $1.90 billion. Moreover, CSCO is more profitable, with a 64.02% gross profit margin compared to UI’s 48.06%.

Furthermore, CSCO’s  26.75%  ROE compares to UI’s negative returns.

Valuation

In terms of forward non-GAAP P/E, UI is currently trading at 28.04x, which is 74.8% higher than CSCO’s 16.04x. Moreover, UI’s 35.79x forward EV/EBITDA ratio is 223% higher than CSCO’s 11.08x.

So, CSCO is relatively more affordable here.

POWR Ratings

CSCO has an overall A rating, which equates to a Strong Buy in our proprietary POWR Ratings system. In comparison, UI has an overall C rating, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Both CSCO and UI have a B grade for Sentiment, in sync with favorable analyst sentiment.

In addition, CSCO has an A grade for Quality. This is justified given CSCO’s 64.02% trailing-12-month gross profit margin, which is 31.2% higher than the 48.78% industry average. In contrast, UI has a Quality grade of B.

Moreover, CSCO has a B grade for Stability, which is consistent with its 0.92 beta. However, UI has a C grade for Stability, consistent with its 1.38 beta.

Of the 55 stocks in the Technology – Communication/Networking industry, CSCO is ranked #3, while UI is ranked #29.

Beyond what I’ve stated above, we have also rated the stocks for Growth, Momentum, and Value. Click here to view all the CSCO ratings. Also, get all the UI ratings here.

The Winner

The networking solutions market is expected to grow exponentially with increasing demand for advanced technologies. While both CSCO and UI are expected to gain in the long run, we think it is better to bet on CSCO now because of its lower valuation and higher profitability.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Technology – Communication/Networking industry here.

Want More Great Investing Ideas?

3 Stocks to DOUBLE This Year

2022 Stock Market Outlook

9 “Must Own” Growth Stocks

How to Beat the Market the Rest of the Year?


CSCO shares were trading at $55.20 per share on Monday afternoon, up $0.12 (+0.22%). Year-to-date, CSCO has gained 26.97%, versus a 18.64% rise in the benchmark S&P 500 index during the same period.


About the Author: Nimesh Jaiswal


Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
CSCOGet RatingGet RatingGet Rating
UIGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


Does Trump Change Stock Market Outlook?

The rally of the S&P 500 (SPY) after the election gives a sense that investors are happy that Trump was elected. But perhaps there is more to this story than meets the eye. That’s why Steve Reitmeister shares his updated market outlook taking into account the pros and cons of Trumps proposed new policies. This comes with a preview of his top 11 stocks to buy now.

3 Streaming Stocks Benefiting from Cord-Cutting Trends

As streaming continues to dominate the digital entertainment landscape, the global streaming market presents a lucrative investment opportunity. So, it could be ideal to invest in fundamentally solid streaming stocks Netflix (NFLX), Walt Disney (DIS), and Roku (ROKU). Read further...

3 Gold Stocks to Buy as Safe-Haven Demand Grows

Gold is a stable investment now due to its role as a safe-haven asset during economic uncertainty, rising demand, industrial use, and growth, bolstered by central bank purchases and interest rate cuts. Therefore, investors should consider investing in top gold stocks such as Newmont (NEM), Barrick Gold (GOLD), and Agnico Eagle Mines (AEM). Read more...

3 AI Stocks Transforming Industries and Driving Future Growth

With rapid digitalization, rapid adoption, and development, as well as surging demand, the AI market is on the rise. Amid this backdrop, investors could buy fundamentally solid AI stocks NVIDIA Corporation (NVDA), Microsoft (MSFT), and Meta Platforms (META) poised for substantial gains. Continue reading...

Updated Stock Market Expectations

The S&P 500 (SPY) has already reached an impressive goal of hitting 6,000. Yet you can see how much shares are struggling now up against this resistance. Steve Reitmeister shares his views on what comes next for the market and his top 10 stocks to stay on the right side of the action.

Read More Stories

More Cisco Systems, Inc. (CSCO) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All CSCO News