Alarm.com Holdings, Inc. (NASDAQ:ALRM), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the NASDAQGS. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company's outlook is already priced into the stock. However, what if the stock is still a bargain? Let's examine Alarm.com Holdings's valuation and outlook in more detail to determine if there's still a bargain opportunity.
See our latest analysis for Alarm.com Holdings
What Is Alarm.com Holdings Worth?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 42.35x 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. Furthermore, Alarm.com Holdings's share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
Can we expect growth from Alarm.com Holdings?
Future outlook is an important aspect when you're looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let's also take a look at the company's future expectations. Though in the case of Alarm.com Holdings, it is expected to deliver a negative earnings growth of -14%, which doesn't help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
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 de-risk your portfolio. Is your current exposure to the stock optimal 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 crystallize your views on ALRM should the price fluctuate below the industry PE ratio.
If you want to dive deeper into Alarm.com Holdings, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Alarm.com Holdings you should be aware of.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.