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Should You Investigate Alarm.com Holdings, Inc. (NASDAQ:ALRM) At US$60.15?

Alarm.com Holdings, Inc. (NASDAQ:ALRM), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$67.99 at one point, and dropping to the lows of US$55.67. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Alarm.com Holdings' current trading price of US$60.15 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Alarm.com Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Alarm.com Holdings

What's the opportunity in Alarm.com Holdings?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 19% below my intrinsic value, which means if you buy Alarm.com Holdings today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth $74.00, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Alarm.com Holdings’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Alarm.com Holdings look like?

earnings-and-revenue-growth
earnings-and-revenue-growth

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. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Alarm.com Holdings, it is expected to deliver a negative earnings growth of -15%, 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 fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

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Are you a potential investor? If you’ve been keeping an eye on ALRM for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which 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 crystalize your views on ALRM should the price fluctuate below its true value.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Alarm.com Holdings.

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.