Alarm.com Holdings Inc (ALRM, Financial) has recently experienced a notable daily gain of 9.95%, yet over the past three months, the stock has seen a decline of 7.31%. With an Earnings Per Share (EPS) of 1.27, investors are keen to understand whether Alarm.com Holdings is modestly undervalued. The following analysis will delve into the company's valuation, providing insights into its true market value.
Company Overview
Alarm.com Holdings Inc (ALRM, Financial) operates in the technology sector with a focus on cloud-based software platforms for intelligently connected properties. The company's solutions cater to both home and business owners, allowing them to secure and automate their properties. The majority of Alarm.com Holdings' revenue is generated in the United States and Canada, primarily through SaaS and licensing fees paid by service providers who resell the company's services. With a current stock price of $56.59 and a market cap of $2.80 billion, a comparison to the GF Value will reveal whether the stock is trading at a fair valuation.
Understanding the GF Value
The GF Value is a proprietary measure used to determine the intrinsic value of a stock. This valuation takes into account historical trading multiples, such as PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, and adjusts for the company's past performance and growth, as well as future business performance estimates. The GF Value Line provides a benchmark for what the fair trading value of the stock should be.
Alarm.com Holdings (ALRM, Financial) appears to be modestly undervalued according to the GF Value estimation. This suggests that the long-term return of its stock could potentially exceed its business growth, making it an interesting prospect for value investors.
Financial Strength
Assessing a company's financial strength is crucial to avoid the high risk of permanent capital loss. Alarm.com Holdings' cash-to-debt ratio of 1.18 ranks below the average in the Software industry. Despite this, the company's overall financial strength score is 7 out of 10, indicating a fair financial position.
Profitability and Growth
Investing in profitable companies, particularly those with consistent profitability, tends to be less risky. Alarm.com Holdings has maintained profitability for the last decade. With a revenue of $857.90 million and an Earnings Per Share (EPS) of $1.27, the company's operating margin is better than over 60% of its peers. The profitability rank of 9 out of 10 reflects strong profitability for Alarm.com Holdings.
Growth is a vital attribute for long-term stock performance. Alarm.com Holdings' 3-year average annual revenue growth rate of 15.4% is impressive, outperforming a significant portion of the Software industry. However, its EBITDA growth rate is less remarkable, which may influence future valuations.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) can indicate its value creation efficiency. Alarm.com Holdings' ROIC of 8.54 is slightly below its WACC of 8.76, suggesting a potential area for improvement in generating shareholder value.
Conclusion
Alarm.com Holdings (ALRM, Financial) presents signs of being modestly undervalued. The company's fair financial condition and strong profitability, combined with its growth potential, make it an attractive option for investors. While its growth ranking may not be stellar, the company's consistent profitability provides a solid foundation for investment consideration.
To gain further insight into Alarm.com Holdings' financial health and prospects, interested investors can review its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
