Yahoo Finance Why Alarm.com Holdings, Inc. (NASDAQ:ALRM) Could Be Worth Watching
While Alarm.com Holdings, Inc. (NASDAQ:ALRM) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$95.23 at one point, and dropping to the lows of US$78.08. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Alarm.com Holdings' current trading price of US$85.41 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Alarm.com Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Alarm.com Holdings
Is Alarm.com Holdings still cheap?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Alarm.com Holdings’s ratio of 50.06x is trading in-line with its industry peers’ ratio, which means if you buy Alarm.com Holdings today, you’d be paying a relatively reasonable price for it. So, is there another chance to buy low in the future? Given that Alarm.com Holdings’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Alarm.com Holdings look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Alarm.com Holdings, at least in the near future.
What this means for you:
Are you a shareholder? ALRM seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on ALRM, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on ALRM for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on ALRM should the price fluctuate below the industry PE ratio.
So while earnings quality is important, it's equally important to consider the risks facing Alarm.com Holdings at this point in time. Case in point: We've spotted 4 warning signs for Alarm.com Holdings you should be mindful of and 1 of them is a bit concerning.
If you are no longer interested in Alarm.com Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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