The company offers a suite of cloud-based solutions to protect and manage residential and commercial properties, providing interactive security, video monitoring, intelligent automation, access control, energy management and wellness solutions.
Its customers include millions of property owners, homeowners and business owners alike. And through the more than 100 million installed devices, AlarmCom processed more than 200 billion data points on its platforms.
AlarmCom markets its solutions through an established network of more than 10,900 service providers, who are experts at selling, installing and supporting the company’s products. As a software-as-a-service company, AlarmCom earns monthly fees from service provider partners who resell its solutions and hardware to their customers.
The company has achieved strong and consistent growth in recent years, with revenues increasing from $339 million in 2017 to $749 million in 2021. Full-year 2021 revenues were up 21.1% year-over-year. Hardware has become a greater part of the revenue mix in recent years, causing earnings to lag profitability. EPS still more than doubled from $0.91 in 2017 to $1.99 in 2021.
Top-line growth has continued in the first half of 2021, with total revenues up 15.7%, license revenues up 14.5% and hardware revenues up 17.6%. However, margins were pressured by higher salaries, new hiring to support additional growth, and supply chain issues impacting hardware. EPS for the first half of the year declined to $0.87 from $1.03.
Margin pressures should ease in the second half of the year as the company reached the first anniversary of higher costs, and EPS should come in at $1.90 for the year. When second-quarter earnings were $0.08 better than expected, the stock surged to $79, before falling back as NASDAQ continued to slump. This pullback was an excellent chance to buy the stock.
ALRM has several drivers that should allow its rapid growth to continue. The company has a competitive advantage thanks to its significant scale with millions of residential and commercial customers who receive excellent service from ALRM’s service providers.
ALRM also has an excellent opportunity to sell more Internet-of-Things (IoT) solutions to this base. And the company is not deeply penetrated in small- and mid-size commercial businesses, or foreign markets, and these markets offer an excellent opportunity for future growth.
I expect EPS to grow to $2.20 a share next year as margins improve, and at 30X this estimate, ARLM is attractively valued relative to other growth stocks with similar growth rates. My target is $80.