Over the last six months, Alarm.com’s shares have sunk to $50.72, producing a disappointing 7.8% loss - a stark contrast to the S&P 500’s 10% gain. This might have investors contemplating their next move.
Is there a buying opportunity in Alarm.com, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Alarm.com Will Underperform?
Despite the more favorable entry price, we don't have much confidence in Alarm.com. Here are three reasons why ALRM doesn't excite us and a stock we'd rather own.
1. Weak Billings Point to Soft Demand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Alarm.com’s billings came in at $257.1 million in Q3, and over the last four quarters, its year-on-year growth averaged 7%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Alarm.com’s revenue to rise by 3.7%, a deceleration versus its 10.8% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
3. Operating Margin Rising, Profits Up
While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.
Looking at the trend in its profitability, Alarm.com’s operating margin rose by 1.9 percentage points over the last two years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 13.1%.
Final Judgment
Alarm.com doesn’t pass our quality test. After the recent drawdown, the stock trades at 2.9× forward price-to-sales (or $50.72 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere. We’d recommend looking at our favorite semiconductor picks and shovels play.
Stocks We Would Buy Instead of Alarm.com
Check out the high-quality names we’ve flagged in our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
