The Hidden Value Inside This Smart Home Software Stock

Author

Noah Zelvis
July 26, 2025

Alarm.com Holdings (NASDAQ: ALRM) is not a high-flying AI darling or a buzzworthy growth tech name, but sometimes that is exactly where opportunity lies.

The stock is down nearly 8 percent year-to-date and sits about 23 percent below its 52-week high.

Yet when you dig into the numbers and market positioning, ALRM starts to look more like a misunderstood platform than a lagging one.

The company offers cloud-based software that powers remote monitoring, automation, and control for residential and commercial security systems.

With its SaaS model, embedded customer base, and sticky recurring revenue, Alarm.com is more of a utility layer for the connected home than a hardware-dependent product vendor.

That nuance is often lost in the broader market conversation. But for investors focused on stable software platforms with room to rerate, ALRM may be one to keep on the radar.

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What Alarm.com Actually Does and Why It’s Underappreciated

Alarm.com powers the brains behind the alarm systems of millions of homes and small businesses.

While many think of physical sensors or cameras, the real value lies in the software platform that ties it all together, enabling users to monitor video, control door locks, and manage energy use through a single mobile interface.

  • Its revenue model is heavily subscription-based, not hardware-driven

  • Customers typically sign multi-year service contracts through providers like ADT

  • The platform supports not just security, but automation (lights, thermostats, garage doors)

  • Solutions extend into commercial and enterprise use cases

The company also acts as a white-label partner to major telecom and security companies.

This distribution strategy means its name may not be front and center to consumers, but the software is quietly running behind much of the North American security infrastructure.

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The Numbers Say the Stock is Mispriced

Let’s get straight to valuation. According to recent estimates, Alarm.com’s intrinsic value is around $76 per share, compared to its current price of nearly $55.

That is a potential 38 percent upside based purely on a discounted cash flow model using conservative assumptions.

  • Market cap: $2.75 billion

  • P/E ratio: 23.4 (below SaaS peers)

  • Forward earnings growth: ~8 percent

  • EV/EBITDA multiple: materially lower than industry average

  • Gross margins near 70 percent

This is not a hyper-growth name, but it has consistent, profitable operations.

With many tech stocks trading at inflated multiples based on distant hopes, ALRM offers real earnings and recurring revenue today.

That makes the current discount more appealing, not less.

Action: Accumulate Below $58 for Long-Term Value

Investors with a long-term mindset may consider adding shares below $58.

At that level, you are buying well below fair value, with a business that has proven resilience and limited cyclicality.

Set an initial price target between $68 and $72, reflecting a modest rerating closer to intrinsic value.

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Why ALRM’s SaaS Model Is Its Biggest Moat

Alarm.com’s software-as-a-service model offers durability in a sector often dominated by hardware churn.

Once installed, the platform becomes an integral part of the customer's daily routine, with checking door locks, arming security systems, and adjusting thermostats.

The friction to switch is high, and most end users do not even consider Alarm.com as a brand to replace.

  • 90 percent+ retention rates among service providers

  • Long-term contracts through partners drive stable cash flow

  • Minimal customer acquisition costs (carried by partners)

  • High-margin add-ons like video analytics, energy monitoring, and automation scenes

Additionally, the company has been expanding its capabilities through modest tuck-in acquisitions and internal R&D.

This includes advanced commercial monitoring features and data analytics for energy and security optimization.

Action: Watch for Upside from Margin Expansion

Alarm.com’s operating margins have room to grow.

While gross margins are already strong, the company is investing in next-generation features, such as AI-powered automation and predictive alerts.

These software enhancements carry little incremental cost but could increase ARPU (average revenue per user).

If operating margins move closer to 25 percent over the next 12–18 months, up from the current 18-20 percent range, the valuation case becomes even more compelling.

Investors should monitor upcoming earnings calls for updates on platform enhancements and monetization strategies.

A slight shift in ARPU or retention metrics could be a strong signal.

What Analysts Are Saying

Alarm.com does not dominate headlines, but analysts have quietly remained bullish.

  • Simply Wall Street pegs fair value at $76

  • Analyst consensus rates it “Buy,” though with modest growth expectations

  • Despite low beta, the stock has moved over 10 percent in recent months, suggesting early accumulation

Some institutional buying has also appeared in recent 13F filings, although the stock remains lightly held relative to peers.

That could change quickly if results begin to surprise to the upside.

Risks to Consider

No stock is without downside risk. Here are a few to watch:

  • Growth is steady, but not explosive, likely 6 to 9 percent annually

  • The company faces competitive pressure from DIY platforms like Ring and Google Nest

  • Dependence on third-party installers and partners could slow innovation

  • Commercial expansion is promising but still nascent

That being said, the fundamentals appear to be sound. Alarm.com is profitable, cash flow positive, and operates in a segment with long-term tailwinds from the adoption of smart homes.

Action: Use Pullbacks to Add Exposure

If the stock dips below $52, investors may want to add more aggressively.

Alarm.com has bounced from that level multiple times over the past 12 months, and technical support appears to be building there.

Alternatively, momentum traders could watch for a breakout above $60, accompanied by volume confirmation.

That would likely spark a short-term move toward the mid-$60s as technical buyers return.

Final Take: A Quiet Platform With Steady Cash Flow and Upside Potential

Alarm.com is not trying to reinvent the wheel. But it doesn’t need to.

The company already has a solid base of recurring revenue, strong software economics, and a sticky customer base.

With shares trading at a 25- to 30-percent discount to intrinsic value, this is a name that could rerate quietly as earnings accumulate and sentiment shifts.

For investors looking beyond the hype and toward durable platforms with real cash flow, ALRM deserves serious consideration.

Action Recap:

  • Accumulate shares below $58, with a near-term target in the $68 to $72 range

  • Monitor operating margin improvements and ARPU updates in quarterly earnings

  • Add on pullbacks near $52 or breakouts above $60, depending on your investing style

That's our coverage for today; thanks for reading! Reply to this email with feedback or any tech stocks you want me to check out.

Best Regards,
—Noah Zelvis
Tech Stock Insider