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Why Alarm.com Holdings Stock Fell 14.5% in August

By Keith Noonan – Updated Sep 7, 2020 at 9:51AM

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News that one of the home security company's biggest competitors is teaming up with a technology giant sent shares tumbling.

What happened

Shares of Alarm.com (ALRM -0.25%) fell 14.5% in August, according to data from S&P Global Market Intelligence. The home security company's stock fell after Alphabet's (GOOG -0.73%) (GOOG -0.73%) Google announced it would be partnering with ADT (ADT -0.53%).

^SPX Chart

^SPX data by YCharts.

Google announced on Aug. 3 that it would be integrating its Nest smart-home platform with ADT. The tech giant also revealed that it had purchased a 6.6% stake in ADT for $450 million. 

Technology and smart home icons.

Image source: Getty Images.

So what

Comments from Google suggest that the ADT partnership will continue to evolve and that Nest devices will eventually become the cornerstone of ADT's smart-home business. Alarm.com stock saw a bit of recovery after the company published better-than-expected second-quarter results on Aug. 5, but the gains were short-lived, and shares moved lower as the month progressed.

The company's revenue climbed 16.4% year over year in Q2 to reach $141.6 million, and adjusted earnings per share for the period came in at $0.41. The average analyst estimate had targeted adjusted earnings of $0.30 per share on revenue of $128 million.

The business' Q2 sales growth and earnings beat was aided by a 16.2% year-over-year increase for software-as-a-service (SaaS) and license revenue, which reached $95.7 million in the period. Free cash flow rose 49% year over year in the period, to $31.8 million.

Now what

Alarm.com stock has continued to move lower in September's trading. The company's share price is down roughly 6% in the month so far. 

^SPX Chart

^SPX data by YCharts.

Alarm.com is guiding for SaaS and license revenue to be between $96.6 million and $96.8 million in the third quarter. Full-year revenue for the category is expected to be between $382.7 million and $383.1 million. Total full-year sales are projected to come in between $382.7 million and $383.1 million, and management is targeting adjusted per-share earnings between $1.46 and $1.47.

Alarm.com has a market capitalization of roughly $2.9 billion and is valued at about 40 times this year's expected earnings and 5.1 times expected sales. 

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (C shares). The Motley Fool recommends Alarm.com Holdings. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Alarm.Com Holdings, Inc. Stock Quote
Alarm.Com Holdings, Inc.
ALRM
$64.38 (-0.25%) $0.16
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$98.09 (-0.73%) $0.72
ADT Stock Quote
ADT
ADT
$7.50 (-0.53%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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