Alarm: A New Buy in Smart Security

10/16/2020 5:00 am EST

Focus: CONSUMER

Hilary Kramer

Editor, GameChangers

Smart security, which allows individuals and business to secure their property and possessions from anywhere through a wide range of electronic devices, still has a lot of room to grow, asserts growth stock expert Hilary Kramer, editor of GameChangers.

AlarmCom Holdings (ALRM) is well-positioned to capitalize on this growth. It has a large base of 6.8 million subscribers, who are connected to over 100 million devices.

Its products and services are distributed by over 9,000 independent service providers, who are experts at selling and installation. This allows ALRM to concentrate its resources on innovation and the development of new products.

Along with the company’s very profitable monthly subscription model, ALRM earns very high gross profit margins, which were 65.4% in the most recent quarter.

In the meantime, the fact that nearly half of the company’s administrative expenses were for Research and Development will help maintain its technological competitiveness.

With the stock down from its high of $74 in February, the share price largely reflects a speed bump in growth. I also believe that the company is being a little too conservative with its guidance, considering the momentum that the company seemed to have at the start of the year.

As the coronavirus hopefully stops restricting business activity sometime in 2021, EPS should jump back to at least $1.65, and the stock will start moving higher.

With a lot of potential growth still ahead of it as homeowners continue to upgrade older systems with the latest technology and the smart home continues to becomes a reality, buy ALRM under $60. My target is $70.

I rate the shares as moderate risk, with a solid growth profile and reasonable valuation of 34.5X earnings being offset by a strongly competitive environment.

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