Arlo Technologies (ARLO) is back in focus after reporting quarterly results that topped analyst expectations and unveiling a US$50 million share repurchase program running through 2027, which signals management’s confidence in its services led model.
See our latest analysis for Arlo Technologies.
The latest results and buyback news come after a period where momentum has been building, with a 19.09% 1 month share price return and a 27.94% 1 year total shareholder return, alongside a 135.70% total shareholder return over three years.
If Arlo’s move has you thinking about where connected devices and automation could head next, it might be worth checking out 30 robotics and automation stocks as another way to spot potential opportunities in related themes.
With the stock at US$13.60, trading at what appears to be a material discount to the US$22.40 analyst price target and a meaningful intrinsic value gap indicated, the key question is whether this is a genuine opportunity or if the market is already factoring in Arlo’s future growth.
Preferred P/E of 97.4x: Is it justified?
Arlo’s latest close at $13.60 sits alongside a P/E of 97.4x, which is well above several benchmarks and suggests the market is pricing in a strong earnings story already.
The P/E ratio compares the current share price to earnings per share, so a higher P/E usually means investors are willing to pay more today for each dollar of current earnings. For a company like Arlo that has only recently become profitable and is focused on cloud based services, a higher multiple can sometimes reflect investor interest in future profit growth rather than today’s earnings base.
Here, the gap between the current 97.4x P/E and the estimated fair P/E of 46.6x is wide. This points to a valuation level that is well above what the SWS fair ratio model suggests could be a more grounded earnings multiple. Compared with the US Electronic industry average P/E of 28.6x and a peer average of 40.4x, Arlo trades at a premium that is hard to ignore and highlights how much optimism is already embedded in the current price.
Explore the SWS fair ratio for Arlo Technologies
Result: Price-to-Earnings of 97.4x (OVERVALUED)
However, you also have to weigh risks such as the high 97.4x P/E multiple compressing and any slowdown in demand for Arlo’s security hardware and subscriptions.
Find out about the key risks to this Arlo Technologies narrative.
Another View: What Does The Cash Flow Say?
The high 97.4x P/E presents Arlo as expensive, yet our DCF model suggests the stock at $13.60 is trading below an estimated future cash flow value of $28.55. That indicates undervaluation on a cash flow basis, so which signal do you give more weight to, earnings or cash flow?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Arlo Technologies for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 48 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
Feeling torn between the signals so far? Take a closer look at the full picture and weigh up 4 key rewards and 2 important warning signs before you decide what Arlo is worth to you.
Looking for more investment ideas?
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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