This smart automation company beat analysts’ estimates by a nickel last quarter. Wall Street forecasts 50% growth for the company this quarter and 25.5% for 2016.
Control4 Corporation (CTRL)
From The Cutting Edge
Based in Salt Lake City, Utah, Control4 Corporation (CTRL) develops smart automation and control systems for the connected home. The company’s smart home automation service has been likened to an “operating system for the home” and is able to control lighting, entertainment, security, energy, and other connected devices all from a single remote app.
Control4 differs from other smart home companies in the way it deploys its smart home systems. Understanding that everyone’s home and needs are unique, the company streamlines programming and installation with trained smart home professionals who collaborate with customers to meet their individual requirements.
It helps to think of smart home system installation as more of a home improvement project than anything else. If you know nothing about plumbing or laying tile, for instance, you’re not going to attempt to remodel your bathroom on your own. Sure you can attempt a DIY job, but chances are something will go wrong along the way if it’s your first time. Hiring professional installers will usually save you time and headaches in the long run.
By using professional dealers/installer, Control4 gives customers the benefit of smart home customization, consolidation, and continued support without the headache. While DIY’ers are forced to troubleshoot complicated problems on their own (often left helpless, wondering where they went wrong), Control4 customers have access to a pool of trained software programmers who integrate smart home devices into a consolidated remote app for a living.
As much as company’s like Google want it to be the case, the vast majority of consumers will not be able to automate their homes without professional installation—at least to the extent of convenience that’s provided by a company like Control4. By taking a more integrated approach, Control4 is setting itself up as the ideal choice for consumers looking to upgrade to “Home 2.0".
Control4 first began trading in 2013 and was considered to be the first home automation pure play on the market. The stock is currently trading at about a two-thirds discount from its original IPO pricing (now at a $177.5 million cap) and has been bottoming out around $7.25 since July 2015.
One of the first things we always look for when identifying a buying opportunity is a mismatch between share price and performance. When sentiment is down and revenues are rising, this tends to be an opportune time to enter a position. Identifying these sort of inefficiencies is ultimately how we make money in the market and Control4 looks to represent an obvious mismatch.
Despite trading near all-time lows, revenue for Control4 rose 24% in its latest quarter (year over year) and that’s excluding an additional $3.2 million added by its February acquisition (extrapolates to ~$6.4 million a quarter or ~$25.6 million a year) of home automation networking firm Pakedge.
Following its $32.2 million acquisition of Pakedge and spending $1.7 million on buybacks last quarter, Control 4’s cash balance was last reported at a solid $47.9 million with less than $6 million in debt. The company is profitable, and is guiding a midpoint of $17 million in net income in 2016, which would represent a doubling of the bottom line from last year.
During the first quarter of 2016 Control4 shipped over 24,000 total controllers, a year-over-year increase of 73%. The majority of core revenue was generated in North America which grew 39% year over year.
International core revenue grew 15% and hospitality customers grew 101%. For now, this is a drop in the bucket for Control4’s bottom line, but it’s good to see traction in new verticals nonetheless.
In the first quarter, Control4 added 99 dealers in North America—the most added in single quarter since 2013. Its total number of active dealers increased to 2,794.
As for valuation, Control4 is priced like a dog. The stock sports a trailing P/E of 19.97 with a forward ratio of 9.66. It trades at 1.03 to sales, with an attractive PEG ratio of just 0.57. Combined with its cash position and recent revenue growth, Control4 Corporation is undervalued by virtually all standard measurements.
Insider ownership is strong at 16.8% and institutional ownership high (73.6%) for such a small firm. The stock is a steal at current prices.
Buy Control4 Corporation (NASDAQ: CTRL) under $9.50. The risk level is Low.
Jason Stutman, The Cutting Edge, www.angelpub.com, 877-303- 4529, June 7, 2016