The home improvement industry is expected to thrive due to urbanization, robust consumer spending, homeowner investment in renovations, and technological advancements driving demand for modern solutions.
So, I think quality home improvement stock Alarm.com Holdings (ALRM) might be a solid investment now. However, Kirkland’s, Inc. (KIRK) is best avoided considering its weak fundamentals.
The global home improvement market is expected to grow at a 6.5% CAGR to $717.60 billion by 2032. Rising disposable income, urbanization, and changing tastes drive the global home improvement market. Moreover, younger consumers seeking attractive and smart home upgrades are boosting growth.
A study by Secure Data reveals that Americans are constantly updating their homes with the latest technology, including smart appliances like thermostats and voice assistants. The study highlights the increasing use of smart devices in homes and highlights the importance of staying updated with the latest advancements.
However, the home improvement industry is facing a number of issues, the most serious of which is a skilled labor shortage. There is a shortage of trained individuals to meet the growing demand for home renovation projects. Another concern is the rising cost of materials and supplies, which can make it difficult for homeowners to invest in renovations and improvements.
Let’s delve into the fundamentals of the featured stocks.
Stock to Buy:
Alarm.com Holdings (ALRM)
ALRM provides various Internet of Things (IoT) and solutions for residential, multi-family, small business, and enterprise commercial markets in North America and internationally. The company operates in two segments, Alarm.com and Other.
ALRM’s trailing-12-month ROTA of 4.81% is significantly higher than the 0.31% industry average. Its trailing-12-month ROCE of 10.75% is 868.5% higher than the 1.11% industry average.
ALRM’s total revenue for the third quarter (ended September 30, 2023) amounted to $221.85 million, up 2.6% year-over-year. Its non-GAAP net income and EPS increased marginally year-over-year to $30.60 million and $0.56, respectively. During the same period, the company’s adjusted EBITDA increased marginally year-over-year to $41.44 million.
Analysts expect ALRM’s revenue to increase 4.6% year-over-year to $920.24 million for the year ending December 2024. Its EPS is expected to grow 6.9% year-over-year to $2.04 for the same period. It surpassed EPS estimates in all four trailing quarters. Over the past year the stock has gained 15.3% to close the last trading session at $56.12.
ALRM’s POWR Ratings reflect this positive outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ALRM also has a B grade for Value, Stability, Sentiment and Quality. It is ranked first among 57 in the B-rated Home Improvement & Goods industry. Click here for the additional POWR Ratings for Growth and Momentum for ALRM.
Stock to Sell:
Kirkland’s, Inc. (KIRK)
KIRK operates as a specialty retailer of home furnishings décor in the United States. The company’s stores provide various merchandise, including holiday décor, furniture, textiles, ornamental wall décor, decorative accessories, art, mirrors, home fragrance, lighting, floral, housewares, and gifts. The company operates physical stores and an e-commerce website.
KIRK’s trailing-12-month gross profit margin of 24.56% is 30.9% lower than the 35.56% industry average. Its trailing-12-month levered FCF margin of 2.88% is 44.4% lower than the 5.18% industry average.
KIRK’s net sales for the third quarter ended October 28, 2023, declined 11.1% year-over-year to $116.37 million. Its net loss came in at $6.40 million and EPS came in at $0.50 in the year-ago period. The company’s gross profit declined 6.2% over the prior-year period to $30.65 million.
Street expects KIRK’s revenue to decline 5.8% year-over-year to $469.94 million for the fiscal year ending January 2024. Its EPS is expected to come in at negative $2.11 for the same period. It missed EPS estimates in three of four trailing quarters. The stock has lost 32.8% over the past year to close the last trading session at $2.85.
KIRK’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, translating to a Sell in our POWR Ratings system.
KIRK is ranked #51 in the same industry. It has a D grade for Stability and Quality. Beyond what is stated above, we’ve also rated KIRK for Growth, Sentiment Momentum and Value. Get all KIRK ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
ALRM shares were trading at $56.47 per share on Thursday morning, up $0.35 (+0.62%). Year-to-date, ALRM has gained 14.13%, versus a 21.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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