SmartRent has been treading water for the past six months, recording a small return of 1.4% while holding steady at $1.36. The stock also fell short of the S&P 500’s 7.5% gain during that period.
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Why is SmartRent not exciting?
We’re passing on SmartRent for now. Here are three reasons why there are better opportunities than SMRT, plus one stock we’d rather own.
1. Revenue tumbling downwards
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. SmartRent’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 16.6% over the last two years.
2. EPS took a dip over the last two years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
For SmartRent, its two-year annual EPS declines of 3.4% mark a reversal from its (seemingly) healthy four-year trend. We hope SmartRent can return to earnings growth in the future.
3. Cash burn ignites concerns
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
SmartRent’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 22.1%, meaning it lit $22.11 of cash on fire for every $100 in revenue.
Final judgment
SmartRent’s business quality ultimately falls short of our standards. With its shares underperforming the market lately, the stock trades at 37.9× forward EV-to-EBITDA (or $1.36 per share). This valuation tells us a lot of optimism is priced in – we think other companies feature superior fundamentals at the moment. Let us point you toward a top digital advertising platform riding the creator economy.
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