One of the COVID-19 crisis’ peculiarities is that it created a rags-to-riches-to-rags narrative for several firms that enjoyed an initial burst of relevance, only to be left in the shadows later. However, the same cannot be said for home automation and monitoring services provider Alarm (ALRM). Social instability appears to be the endemic circumstance left over from the SARS-CoV-2 virus, meaning that the outlook for the company is positive. I am bullish on ALRM stock.
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To be upfront, the narrative for Alarm is awfully cynical. While not morally questionable as wagering on publicly traded private penal institutions, ALRM stock plays into people’s fears of crime and instability, particularly amid the backdrop of unrest throughout much of 2020. At the same time, the quandary is that American families genuinely do have reasons to be concerned. For instance, firearms-related violence has gripped the nation, creating a huge demand for security solutions.
It’s not just a matter of speculation – investors can recognize the heightened demand profile in Alarm’s financial statements. For the company’s latest second-quarter earnings report, Alarm delivered adjusted earnings per share of $0.49. This tally exceeded analysts’ consensus target of $0.41 (though, to be fair, it slipped from the $0.54 per share earned in the year-ago quarter). Significantly, over the past eight quarters, Alarm surpassed the consensus estimate each time.
On the revenue front, Alarm posted $212.85 million on the top line, beating out Wall Street’s target by 2.49%. Also, the sales total compared very favorably to the $188.9 million posted in Q2 2021. With violent incidents and property crimes not showing many signs of cooling off, more people are considering monitoring services.
ALRM Stock Aligns with Primal Fears
While Americans might not need to wear facemasks everywhere they go like they used to during much of the trailing two-year period, circumstances have not quite returned to normal. From road rage to air rage to a general feeling of angst, several households fear that many members of the public have lost their grip on reality. They’re not exactly mistaken in their beliefs.
According to the Public Policy Institute of California, following decreases in property and violent crimes in 2020, both forms of lawlessness jumped up in 2021. “In particular, the troubling increase in homicides that we saw in 2020 appears to continue—homicides in these cities are up by about 17% in 2021. The increase in property crime in 2021 was driven by car break-ins and auto thefts.”
Now, the nonpartisan research unit points out that crime rates have essentially returned to pre-pandemic levels. Still, when it comes to ALRM stock and the underlying business, it appears that regular folks may be intuitively sensing the delta in crime rates.
Specifically, Alarm represents one of the few companies that generally improved its financial profile from 2019 onwards. In other words, the business continued to gain relevance as society entered the various phases of the post-pandemic new normal.
In 2020, Alarm posted annual revenue of $618 million, up an impressive 23% from 2019’s result. Moreover, one year later, the company rang up sales of $749 million, representing a 21% lift. On a trailing-12-month basis, Alarm is looking at $805.9 million. If the year were to end today, the company would have grown sales to nearly 8%.
At a time when many other businesses and industries are struggling against multi-decade highs in inflation, Alarm presents an enticingly robust backdrop.
Circumstances May Worsen ‘Favorably’ for Alarm Stock
If the latest headlines of rising social tensions represent anything, it’s that circumstances appear to be worsening. While not wanting to present a worrywart thesis, certain dynamics, such as rising homelessness, can’t logically be great for public cohesiveness and order. However, the more the underlying social framework goes off-kilter, the more bullish the narrative becomes for ALRM stock.
In particular, the difficult circumstances associated with the COVID-19 crisis have many people in law enforcement rethinking their careers. In an article about Smith & Wesson Brands (SWBI), I mentioned that, per The Wall Street Journal, “many police departments are struggling to replace officers who are quitting amid rising crime rates and greater public scrutiny of law enforcement.”
“Stated differently, American households will find that they are increasingly responsible for their own protection. Just like the fear of social degradation and racist scapegoating sparked a boon in firearm sales during the initial wave of COVID-19, new societal paradigms may likewise boost demand for guns.”
Admittedly, the concept of buying firearms is difficult to swallow for millions of Americans, irrespective of their concerns for personal safety. However, a home automation and monitoring system naturally evokes a far less reactionary response, even if the underlying motivation is tied to social controversies.
Is ALRM Stock a Buy or Sell?
Turning to Wall Street, ALRM stock has a Moderate Buy consensus rating based on four Buys, three Holds, and no Sells assigned in the past month. The average ALRM stock price target is $82.33, implying 19.1% upside potential.
ALRM Stock Benefitting from an Uncomfortable Reality
Anytime the idea of personal safety is broached, the conversation at least tangentially touches sensitive topics. After all, there’s a reason why a consumer has been brought to this point – and usually, it’s not a pleasant one. Simultaneously, however, with heightened tensions in society and with greater challenges on law enforcement agencies across the nation, personal safety is an issue that can no longer stay on the sidelines. Therefore, ALRM stock represents a clear beneficiary from an uncomfortable reality.
