Over the past six months, Arlo Technologies’s stock price fell to $12.68. Shareholders have lost 11.7% of their capital, which is disappointing considering the S&P 500 has climbed by 8%. This may have investors wondering how to approach the situation.
Given the weaker price action, is now a good time to buy ARLO? Find out in our full research report, it’s free.
Why Does Arlo Technologies Spark Debate?
Originally spun off from networking equipment maker Netgear in 2018, Arlo Technologies (NYSE: ARLO) provides cloud-based smart security devices and subscription services that help consumers and businesses monitor and protect their homes, properties, and loved ones.
Two Positive Attributes:
1. Long-Term Revenue Growth Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Arlo Technologies’s sales grew at a solid 8.4% compounded annual growth rate over the last five years. Its growth surpassed the average business services company and shows its offerings resonate with customers.
2. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Arlo Technologies’s margin expanded by 15.5 percentage points over the last five years. This is encouraging because it gives the company more optionality. Arlo Technologies’s free cash flow margin for the trailing 12 months was 11.5%.
One Reason to Be Careful:
Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Arlo Technologies’s revenue to stall, a deceleration versus its 8.4% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.
Final Judgment
Arlo Technologies’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 16.5× forward P/E (or $12.68 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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