Alarm.com Holdings' (NASDAQ:ALRM) earnings growth rate lags the 22% CAGR delivered to shareholders

By
Simply Wall St
Published
January 19, 2022
NasdaqGS:ALRM
Source: Shutterstock

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on a lighter note, a good company can see its share price rise well over 100%. Long term Alarm.com Holdings, Inc. (NASDAQ:ALRM) shareholders would be well aware of this, since the stock is up 175% in five years. The last week saw the share price soften some 5.8%.

While the stock has fallen 5.8% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

See our latest analysis for Alarm.com Holdings

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over half a decade, Alarm.com Holdings managed to grow its earnings per share at 39% a year. The EPS growth is more impressive than the yearly share price gain of 22% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. Having said that, the market is still optimistic, given the P/E ratio of 64.39.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
NasdaqGS:ALRM Earnings Per Share Growth January 19th 2022

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

Investors in Alarm.com Holdings had a tough year, with a total loss of 22%, against a market gain of about 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 22% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Alarm.com Holdings is showing 4 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

But note: Alarm.com Holdings may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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