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Bull of the Day: Alarm.com (ALRM)

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Alarm.com Holdings (ALRM - Free Report)  is a Zacks Rank #1 (Strong Buy) that offers interactive security solutions for both home and business owners. The company offers systems which include images sensors, crash and smash protection, web control, mobile access and video monitoring.  

Here is how the company describes itself:

We create innovative technology that deepens the connection between people and the things they care about most – their families, homes and businesses. Millions of people trust Alarm.com every day for better security, intelligent automation and dependable service.

Surprise Beat on Q$ EPS Shows Promise

Alarm’s stock struggled late last year after a disappointing quarter led to a 15% loss in a day. From there, the stock kept falling, bottoming in the low $40s last month.

However, earnings out this week showed that the company was back on track on its historical trend of surprising to the upside on EPS. The company showed a 30% beat on the bottom line, along with a nice top line beat. Alarm also guided higher, sating that FY20 will now come in at $1.48-1.49 v the $1.42 expected. 

CEO, Stephen Trubdle had positve comments on the quarter:

"We are pleased to report solid results for the quarter and the year thanks to the performance of our service provider partners and dedication of the Alarm.com team. With our best-in-class platform and strong product pipeline, we are focused on continuing to deliver innovative capabilities for our service provider partners to extend their leadership positions in their markets.”

Analysts Like the Quarter

While estimates have remained at the same levels short-term, they are moving higher for FY2021. Over the last 7 days, we have seen estimates tick from $1.52 to $1.56, or 2.6% higher. While that isn’t as impressive as the beat or guide from the company, analysts are overall positive.

After earnings, Roth Capital reiterated its $51 Price target citing growth re-acceleration. While the firm has supply chain concerns over COVID-19, there are overall positive on SaaS growth and FY20 guidance.

Imperial Capital raised its price target to $59 and reiterated their outperform rating. The firm says was impressed by revenue, EPS, and EBITDA, which all beat their estimates. Moreover, they see recurring revenue growth in Fiscal year 2020.

What’s perhaps most impressive about this company is the consistent beat on earnings over the years. They rarely miss, but of course the magnitude of the beat is important. While the company had setbacks last year, it looks like they are back on track to resume the longer-term trend.

The Technical Take

The stock had been in a downtrend since the spring of last year, moving from its all-time high of $71.50 to the 2019 low of $41.06. With some evidence of a turn around, the big question for bulls is how far can the stock rally before stalling again.

The first important level is the 200-day moving average, which resides just over $48. Since earnings, there has been some nice resistance in that area. In addition, the stock has a 61.8% Fibonacci retracement level that is adding to resistance. If the stock can break higher, we should get some short covering. With 23% of the float short the stock, we could see a fast move to $50 beyond.

If the bulls do return, next resistance level would be the $58.75 area

In Summary

Alarm.com has the potential to move higher and return to its long-term trend. Investors might be waiting for proof of sustained revenue growth before they go all in. However, once that catalyst is realized, the stock wont waste anytime moving higher. With a high short interest and a low-float, the stock is ripe for a short squeeze. Keep an eye out on that $49-50 level and any more news on supply chains out of Asia as potential risks.

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