Alarm.com Holdings Inc (ALRM, Financial) recently experienced a notable daily gain of 9.95%, although it saw a 3-month decline of -7.31%. With an Earnings Per Share (EPS) of $1.27, investors are contemplating whether the stock is modestly undervalued. This article delves into the valuation analysis of Alarm.com Holdings (ALRM), providing insights into whether its current market price reflects its intrinsic value.
Company Introduction
Alarm.com Holdings Inc (ALRM, Financial) operates through two segments: Alarm.com and Other, with the former being the primary revenue generator. This segment provides cloud-based software platforms for intelligently connected properties, while the Other segment focuses on automation solutions and energy management products. The company's revenue primarily comes from SaaS and license fees paid by service providers. With the majority of revenue generated in the United States and Canada, Alarm.com Holdings has established a solid market presence. When comparing the current stock price of $56.59 to the GF Value of $71.17, it suggests that the company's shares might be trading at a discount.
Summarize GF Value
The GF Value is a unique measure that estimates a stock's fair value based on historical trading multiples, a GuruFocus adjustment factor, and future business performance predictions. Alarm.com Holdings (ALRM, Financial) appears to be modestly undervalued according to this valuation method. The GF Value Line suggests that if Alarm.com Holdings' share price is significantly below this line, as it is now at $56.59 per share, the stock could offer higher future returns compared to its business growth.
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Financial Strength
Investors should consider a company's financial strength to avoid potential capital loss. Alarm.com Holdings has a cash-to-debt ratio of 1.29, which positions it below 61.13% of its peers in the Software industry. This leads to a financial strength ranking of 7 out of 10, indicating a fair balance sheet.
Profitability and Growth
Consistent profitability is less risky and more desirable for investors. Alarm.com Holdings has shown profitability over the last decade, with a revenue of $857.90 million and an Earnings Per Share (EPS) of $1.27. The company's operating margin stands at 6.44%, which is competitive within the Software industry. This performance earns Alarm.com Holdings a profitability rank of 9 out of 10.
Growth is a vital factor in valuation. Alarm.com Holdings' annual revenue growth rate of 15.4% outpaces 65.78% of its industry counterparts. However, its 3-year average EBITDA growth of 0.5% is less impressive, ranking lower than 64.73% of companies in the Software industry.
ROIC vs WACC
Comparing the Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) helps assess a company's profitability. Alarm.com Holdings' ROIC over the past 12 months is 7.83, which is below its WACC of 9, indicating that it may not be creating value for shareholders as efficiently as possible.
Conclusion
In conclusion, Alarm.com Holdings (ALRM, Financial) seems to be modestly undervalued based on the GF Value. The company maintains fair financial health and exhibits strong profitability, although its growth could be more robust. For a deeper understanding of Alarm.com Holdings' financials, interested parties can explore the company's 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.
