Homeowners and businesses are increasingly turning to alarm monitoring services to give them the peace of mind that comes from knowing their properties are safe and secure at all times. In fact, the demand for these services has grown steadily in recent years, as more and more people have become aware of the many benefits that they offer.
Indeed, alarm monitoring services can provide a wide range of features, from simple security systems to comprehensive home management solutions. In contrast to traditional security features like video monitoring and access control, many modern alarm systems can also share data and information with law enforcement agencies too.
This rise in interest is due in part to pressing concerns surrounding growing public disorder. In fact, with a spike in crime rates and natural disasters, many people are deciding to take security matters into their own hands – and alarm systems provide another layer of protection against intruders, fires, and other safety risks.
One of the leading brands operating in the alarm monitoring space is Alarm.com (ALRM). The company is over 20 years old and has built up a formidable reputation – and 8.4 million subscribers – during that time. The firm operates a cloud-based Software-as-a-Service (SaaS) platform, providing products such as video monitoring, access control, energy management and wellness service. ALRM also offers a mobile app that allows customers to remotely control their locks, thermostats, and lighting at the touch of a button.
But does the residential and commercial security industry make for a good investment? And is Alarm stock its hidden gem?
The Home Security Market Is Growing
Besides the rising awareness of surveillance and alarming systems in general, several other driving factors are helping the sector grow. Perhaps the most important of these is that many insurance companies are now offering reduced insurance premiums, discounts, and even policies specifically for homes and businesses with wired-in alarm systems.
Because of this, the alarm monitoring market is expected to grow at a compound annual growth rate (CAGR) of 5.0%, going from $48.85 billion in 2019 to $68.57 billion in 2027.
In addition, the market for video analytics services is also expanding too. This is primarily due to the increasing demand for real-time event detection, AI-enabled video analytics, facial recognition, and instantaneous alerts. Video analytics can track behavior patterns and provide valuable insights to government bodies and law enforcement agencies.
Moreover, retail businesses are using the technology to analyze customer movement and behavior patterns, while deep learning algorithms are also being used to develop more accurate and efficient video analytics solutions.
Interestingly, the video analytics space is set to grow at a CAGR of 21.5% from 2022, reaching a market valuation of $35.88 billion by 2030. This faster growth is significant because the industry has many overlaps with the alarm monitoring business, and if ALRM needs to branch out into other ventures in the coming years, video analytics might be just a perfect fit.
Indeed, Alarm.com is already making headway in this regard. Escalated Events, the firm’s new video-based monitoring solution, is a technology that can detect an intruder in a person’s backyard and dispatch a first responder to the scene. A central monitoring station can also access live feeds from any security cameras present and decide whether to initiate any further action. This is a proactive security measure that can help to prevent crimes before they even happen.
ALRM: Consistent Growth And High Returns
The company recently exceeded Wall Street estimates in its third-quarter earnings report. The firm registered a revenue beat of $4.6 million to bring in total sales of $216.1 million, while non-GAAP earnings per share were up $0.02 year-on-year at $0.55.
In fact, Alarm.com has increased its quarterly revenue for 20 consecutive periods and has not failed to smash analysts’ expectations for its EPS since at least the fourth quarter of 2017. Its top line has also seen robust growth, rising from $502 million in 2019 to $749 million in 2021.
But despite such a consistent and superior financial performance, ALRM’s share price has fallen 41% this year.
Some of that loss can certainly be attributed to the current inflationary macro environment. However, it’s also likely that investors are put off by the company’s poor valuation metrics right now. For example, Alarm trades at a steep forward price-to-cash flow ratio of 49x, and its year-on-year EBIT growth is going down at -24%.
That said, the company shines when it comes to profitability. The firm’s net income margin of 5.7% is 246 basis points above the Information Technology median, while its return on common equity of 8.0% betters its rivals’ by another 297 basis points too.
Competitive Threats Growing
While ALRM hadn’t faced too many threats in the early years of its existence, that situation has undoubtedly changed of late. The company now faces stiff competition from Google and Amazon, which have created similar yet alternative offerings.
For example, Google Nest is a subsidiary of Alphabet and is involved in manufacturing connected home products, including smart light bulbs and speakers. The company also offers a subscription-based security service that includes surveillance footage and live streaming.
Furthermore, Amazon Ring is another major player in the connected home space and sells a range of products, including doorbell cameras and security systems.
Both Google Nest and Amazon Ring have significant resources, and are quickly gaining a share of the market. As such, Alarm.com will need to continue innovating to stay ahead of the developing pack.
Is ALRM Stock A Hidden Gem?
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