Yahoo Finance Did Changing Sentiment Drive Alarm.com Holdings's (NASDAQ:ALRM) Share Price Down By 40%?
The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Alarm.com Holdings, Inc. (NASDAQ:ALRM) shareholders over the last year, as the share price declined 40%. That contrasts poorly with the market return of -8.5%. The silver lining (for longer term investors) is that the stock is still 28% higher than it was three years ago. More recently, the share price has dropped a further 19% in a month. However, we note the price may have been impacted by the broader market, which is down 13% in the same time period.
See our latest analysis for Alarm.com Holdings
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the unfortunate twelve months during which the Alarm.com Holdings share price fell, it actually saw its earnings per share (EPS) improve by 145%. It could be that the share price was previously over-hyped.
The divergence between the EPS and the share price is quite notable, during the year. So it's easy to justify a look at some other metrics.
Alarm.com Holdings's revenue is actually up 19% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So it makes a lot of sense to check out what analysts think Alarm.com Holdings will earn in the future (free profit forecasts).
A Different Perspective
The last twelve months weren't great for Alarm.com Holdings shares, which performed worse than the market, costing holders 40%. The market shed around 8.5%, no doubt weighing on the stock price. Investors are up over three years, booking 8.5% per year, much better than the more recent returns. The recent sell-off could be an opportunity if the business remains sound, 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Alarm.com Holdings (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.
Of course Alarm.com Holdings may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
