Shares of Company Ubiquiti, Inc. (NYSE: UI) grew 39.1% in February, according to data from S&P Global Market Intelligence.
Ubiquiti was the target of a short-seller report in late January, which may have increased short interest in the stock just before earnings.
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Unfortunately for those short sellers, Ubiquiti continued to deliver a terrible earnings report, beating analyst expectations by a significant margin. That hit is likely to force a short squeeze, sending stocks higher.
Ubiquiti is different from public companies because the founder and CEO, Robert Pera, owns 93% of the outstanding shares, which leaves a very small public float, although the market cap of Ubiquiti has reached $ 47 billion as of this writing.
In late January, a short-selling fund called Hunterbrook Capital disclosed that it was short shares of Ubiquiti. The gist of Hunterbrook’s brief was that Ubiquiti equipment was being shipped by distributors to Russia for use in Russian military communications, in violation of sanctions. Then in early February, Hunterbrook published a second piece, saying that Ubiquiti equipment was used on Jeffrey Epstein’s island and the house of Sean “P-Diddy” Combs.
Ubiquiti makes a high-performance network tool that’s easy to use and has strong privacy features, which are features that every customer — even hackers — want. In addition, Ubiquiti sells to distributors around the world, so second or multiple levels of sales can be difficult to track.
But again, these claims come from a motivated short seller, and it’s unclear whether Ubiquiti is liable if its equipment somehow ends up in the hands of bad actors. Ubiquiti has been shorted several times in the past, but this short attack didn’t stick; in fact, Ubiquiti’s shares hit record highs late last year.
Hunterbrook isn’t faring well either, as Ubiquiti later reported exceptional earnings for the second quarter. Revenue rose 35.8% year-over-year to $814.9 million, while adjusted (non-GAAP) earnings per share rose 70.2% to $3.88, beating expectations by a hefty $0.80.
The earnings report came out on February 6, at which time about 540,000 shares were briefly sold. That’s a small percentage of their total shares, but it’s more than 11% of the total public. Therefore, strong gains may have prompted short covering and contributed to the size of February’s gains.
