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Did Alarm.com Holdings's (NASDAQ:ALRM) Share Price Deserve to Gain 68%?

Simply Wall St

It hasn't been the best quarter for Alarm.com Holdings, Inc. (NASDAQ:ALRM) shareholders, since the share price has fallen 10% in that time. But don't let that distract from the very nice return generated over three years. To wit, the share price did better than an index fund, climbing 68% during that period.

See our latest analysis for Alarm.com Holdings

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During three years of share price growth, Alarm.com Holdings achieved compound earnings per share growth of 26% per year. The average annual share price increase of 19% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat. Having said that, the market is still optimistic, given the P/E ratio of 98.81.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

NasdaqGS:ALRM Past and Future Earnings, September 25th 2019

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of Alarm.com Holdings's earnings, revenue and cash flow.


A Different Perspective

The last twelve months weren't great for Alarm.com Holdings shares, which cost holders 17%, while the market was up about 2.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Investors are up over three years, booking 19% per year, much better than the more recent returns. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. Before spending more time on Alarm.com Holdings it might be wise to click here to see if insiders have been buying or selling shares.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.