On Jan 14, we issued an updated research report on Allegion plc ALLE. We believe that material price inflation might continue to escalate costs and thereby hurt the company’s near-term profitability.
It’s not surprising that the stock has also put up a dismal show in the recent times. Notably, in the past month, Allegion’s shares have lost 1.9% against the ’s growth of 3.3%.
Read on to find the major factors affecting this Zacks Rank #4 (Sell) company’s prospects and why it may be prudent to avoid the stock at the moment.
Factors at Play
Escalating costs of sales has been a major cause of concern for Allegion over the past few quarters. Notably, in third-quarter 2018, the company’s cost of sales flared up 20% year over year. Material cost inflation is escalating the company’s aggregate costs of late. Rising cost, if unchecked will continue to dent the company’s margins in the quarters ahead.
The company intends to expand its business in new overseas markets. However, this exposes it to economic, social and environmental risks. Moreover, Allegion’s businesses are subject to seasonality, depending on the product line.
For instance, its security product sales are typically higher in second and third quarters every year in the Northern Hemisphere as favorable weather is conducive to construction and do-it-yourself projects. However, any uncertainties or adversities during these quarters can be a huge drag on the company's sales.
Moreover, on an Enterprise Value/EBITDA (TTM) basis, Allegion’s shares look overvalued compared to its industry with respective tallies of 13.0x and 9.2x for the past month. This makes us cautious toward the stock.
Stocks to Consider
Some better-ranked stocks in the same industry are Axon Enterprise, Inc. AAXN, Brady Corp. BRC and Alarm.com Holdings, Inc. ALRM. While Axon Enterprise sports a Zacks Rank #1 (Strong Buy), Brady and Alarm.com Holdings carry a Zacks Rank #2 (Buy). You can see .
Axon Enterprise exceeded estimates in each of the preceding four quarters, the average positive earnings surprise being 391.67%.
Brady surpassed estimates thrice in the trailing four quarters, the average positive earnings surprise being 7.04%.
Alarm.com Holdings outpaced estimates in each of the preceding four quarters, the average earnings surprise being 27.26%.
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