Over the past six months, Arlo Technologies’s shares (currently trading at $14.82) have posted a disappointing 12.9% loss while the S&P 500 was down 1.3%. This may have investors wondering how to approach the situation.
Following the drawdown, is now a good time to buy ARLO? Find out in our full research report, it’s free.
Why Are We Positive On ARLO?
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.
1. Long-Term Revenue Growth Shows Strong Momentum
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Arlo Technologies’s 8.2% annualized revenue growth over the last five years was solid. Its growth surpassed the average business services company and shows its offerings resonate with customers.
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Arlo Technologies’s full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.
3. 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 18.5 percentage points over the last five years. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Arlo Technologies’s free cash flow margin for the trailing 12 months was 12.6%.
Final Judgment
These are just a few reasons why we think Arlo Technologies is a high-quality business. With the recent decline, the stock trades at 18.7× forward P/E (or $14.82 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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