Please ensure Javascript is enabled for purposes of website accessibility

Why Latch Stock Fell 26% in 2021

By Jeremy Bowman – Updated Jan 7, 2022 at 2:53PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Wide losses and supply chain concerns weighed on the stock.

What happened

Shares of Latch (LTCH 8.32%) took a dive after investors were underwhelmed by early results from the property tech company that went public through a special purpose acquisition company (SPAC). Despite rapid growth from the company, the market generally soured on SPACs in the second half of the year, and high-growth stocks underperformed. 

According to data from S&P Global Market Intelligence, the stock finished the year down 26%. As you can see from the chart below, Latch stock fell sharply over the last three months of the year in line with a broader market trend.

LTCH Chart

LTCH data by YCharts

So what

On June 7, Latch completed its business combination, making the provider of smart-lock, intercom, and thermostat technology a publicly traded company. It functions as both a software-as-a-service platform and a seller of hardware. Just two days later, Latch reported first-quarter revenue growth of 143% to $6.6 million, and booked annual recurring revenue of $38.9 million. However, there were no analyst estimates out on the stock yet, and the investor reaction was muted.

A building with symbols representing smart devices.

Image source: Getty Images.

Analysts generally weighed in with bullish ratings over the subsequent weeks and the stock remained volatile. However, shares dove sharply after Latch's second-quarter report in August, falling 17% after the company reported a wide loss and revenue of $9 million. That missed the average estimate of two analysts at $9.86 million, even though the top line tripled. The sell-off seemed to raise questions about Latch's valuation, which was above a price-to-sales ratio of 30 at that point.

The stock rebounded at the end of the month after industry peer SmartRent posted strong results in its debut earnings report, boosting confidence in the industry.

In October, the stock declined on a pair of analyst downgrades due to supply chain impacts on new construction, which would impact the company's growth. The company delivered another round of strong numbers in its third quarter, but a wide range in its revenue guidance raised concerns that it could be affected by supply chain issues, and shares drifted lower for the rest of the year.

Now what

Latch's growth story sounds promising and the market for property tech or "prop tech" seems huge as buildings look to upgrade their facilities with smart systems. But the company is still deeply unprofitable -- it reported an adjusted EBITDA loss of $57.5 million for the first three quarters. The stock is also still expensive at a price-to-sales ratio of roughly 20.

Still, the value proposition seems promising for investors with a high risk tolerance.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns and recommends Latch, Inc. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.