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Why Arlo Technologies Stock Soared Today

By Evan Niu, CFA – Jul 29, 2020 at 1:05PM

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Raymond James upgraded the smart-home specialist on share gains and a growing services business.

What happened

Shares of Arlo Technologies (ARLO -1.28%) have soared today, up by 26% as of 12:20 p.m. EDT, after getting an upgrade from Wall Street. The stock had gained as much as 64% in morning trading.

So what

Raymond James upgraded its rating on Arlo from market perform to outperform and assigned a price target of $6. Analyst Adam Tindle points out that the company's current market cap is close to its net cash (at least prior to today's jump). Recent channel checks may indicate that Arlo, which makes smart-home products, may be seeing a rebound in the business.

Green stock chart going up

Image source: Getty Images.

"We think the vicious commoditization cycle that has derailed the industry since 2018 has ended," Tindle wrote in a research note to investors. "Our checks suggest [average selling prices] have gone from double-digit declines to double-digit growth."

Now what

As the industry's economics improve, Tindle believes that Arlo has been able to expand its market share relative to the competition. Recent share gains may be different than previous fluctuations, though, as the company is now aggressively growing its services business and has tweaked its pricing model for the new strategy. Arlo shook up its management team in April in order to focus on growing services revenue while optimizing costs.

Arlo reports fiscal second-quarter results a week from today on Aug. 5. The company's guidance calls for revenue of $50 million to $60 million. Adjusted net loss per share is expected to be $0.39 to $0.46.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Arlo Technologies. The Motley Fool has a disclosure policy.

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Arlo Technologies, Inc. Stock Quote
Arlo Technologies, Inc.
$4.64 (-1.28%) $0.06

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