Arlo Technologies Valuation in Focus After Recent Product Launches and Stock Price Swings

• Curious if Arlo Technologies might be a hidden gem, or if its stock price has already run too far ahead of its value? You are not alone. Let's break it down together.
• The stock has been on a wild ride, up 8.9% in the last week but still down 25.0% over the past month. It has gained an impressive 32.2% year-to-date and 29.2% over the past year.
• News about Arlo's latest product launches and strategic partnerships have captured investor attention, fueling both optimism and debate about the company's long-term prospects. Market sentiment has swung as these developments raise questions about the company's ability to maintain its growth trajectory while navigating competitive headwinds.
• According to our valuation framework, Arlo Technologies scores 3 out of 6 for undervaluation. This places it at the crossroads between fair value signals and red flags. Next, we'll walk through how analysts and different models approach Arlo's valuation, followed by a smarter, more holistic way to make sense of the numbers at the end.

Find out why Arlo Technologies's 29.2% return over the last year is lagging behind its peers.

Approach 1: Arlo Technologies Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates what a company is worth today based on projections of how much cash it will generate in the future, adjusted for the time value of money. This approach is often used for growth companies like Arlo Technologies, where cash flows are a key measure of long-term value.

For Arlo Technologies, the most recent Free Cash Flow (FCF) stands at $59.98 Million. Forecasts suggest FCF will continue rising, with projections reaching as high as $125.52 Million by 2035. These future numbers are based on analyst estimates for the next five years, and longer-term cash flows are extrapolated to complete the valuation picture.

Factoring in these predicted cash flows and discounting them back to today's value, the DCF model calculates an intrinsic share value of $16.66. Given the current share price, this implies the stock is trading around 13% below its fair value, suggesting the market may not fully recognize Arlo's long-term cash potential.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Arlo Technologies is undervalued by 13.0%. Track this in your watchlist or portfolio, or discover 920 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Arlo Technologies.

Approach 2: Arlo Technologies Price vs Sales

For many growing yet not consistently profitable companies like Arlo Technologies, the Price-to-Sales (P/S) multiple offers a useful lens for valuation. This ratio lets investors compare a stock’s value relative to its revenue, which can be more meaningful than earnings when profits are volatile or reinvested for growth. The P/S multiple is especially helpful in technology and electronic sectors, where companies often prioritize rapid expansion over immediate bottom-line results.

The market’s P/S expectations typically reflect business growth, profitability, and perceived risk. Higher P/S multiples are common where investors expect brisk sales growth and improving profit margins. Companies facing industry headwinds or slowing top lines usually trade at a discount.

Currently, Arlo Technologies trades at a P/S multiple of 3.0x. This sits above the Electronic industry average of 2.4x, but below the peer average of 4.7x. To provide added context, Simply Wall St's proprietary "Fair Ratio" estimate for Arlo is 2.1x. This fair ratio dynamically weighs Arlo’s growth outlook, profit margin, company size, risk factors, and broader industry trends, offering a more rounded benchmark than industry or peer averages alone.

With Arlo’s actual P/S multiple only slightly above its fair ratio, the shares look close to being fairly valued by this approach, with neither a clear discount nor an obvious premium.

Result: ABOUT RIGHT

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Arlo Technologies Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your personal story about a company, connecting what you believe about its future with a financial forecast and a fair value. In this way, you are grounding your expectations in both the numbers and the reasons behind them.

Narratives make investing more accessible by helping you build and share a clear, dynamic view of Arlo Technologies, all within the Community page on Simply Wall St, where millions of investors contribute their perspectives. With a Narrative, you can easily see how your assumptions about growth, margins, or innovation translate into a fair value, then compare this directly to the current price to help inform your decisions.

Best of all, Narratives update in real time when things change, such as a new product launch, earnings surprise, or partnership announcement, so your view always stays relevant. For example, some investors now see Arlo worth as much as $26 per share, based on expectations of global smart home adoption and premium service growth, while others are more cautious, valuing shares at just $22 due to risks like competition and international headwinds.

Do you think there's more to the story for Arlo Technologies? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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