ALRM: earnings growth

FYI, just someone’s opinion (IBD)


A slowdown in profit and sales growth can serve as a fundamental reason to lighten up or completely exit a stock. Sharp deceleration in earnings growth over a period of at least two quarters can coincide with topping signals in a chart. A deceleration in EPS growth from, say, 60% to 55% to 50% is not likely to be of serious concern. But a drop in the rate of profit increases from 100% to 30% to 5% would be.

How about Alarm.com?

Third-quarter profit is seen at 20 cents a share, up 5% vs. a year ago. In the prior six quarters, Alarm.com’s profit rose 1,200%, 1,400%, 36%, 36%, 54% and 120%.

In other words, the potential for deceleration is high. But keep in mind that the company also has a knack for whacking Wall Street’s consensus estimate. In the past four quarters, the maker of internet-connected devices for home surveillance and monitoring beat the estimate by an average 75%.

Analysts see Q3 revenue rising 22% to $82.9 million.

In the second quarter, Alarm.com noted that it expanded its product line in both residential and commercial-property video cameras.

Alarm.com’s service provider partners can more effectively address a wider range of property sizes, applications and customer needs within the small and medium-sized business market,” management said in a news release.

R&D spending is a big deal at Alarm.com. This could be one reason why in some quarters, and even years, Alarm.com’s profit may be flat or even drop — even though revenue is up sharply.

In Q2, research and development expense as a ratio of total sales was 23.4%, and total R&D expense was up 86% year over year to $20.1 million.

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