The best stock for home automation

The world's biggest names are getting into this booming industry -- but this company already has a commanding position.

By StreetAuthority Jan 23, 2014 4:41PM
Man adjusting room temperature © Tetra Images, Tetra images, Getty ImagesBy Marshall Hargrave

Consumers are becoming more and more accustomed to being completely connected. We want to control our electronics, adjust the thermostat, close the garage, and lower the shades -- all from the comforts of our couches.

As a result, our homes are becoming smarter and smarter. Some of the world's biggest players are looking to get into the home automation space.

Last week, Google (GOOG) said it would buy Nest Labs, a maker of smart thermostats and smoke detectors, for over $3 billion. The likes of Comcast (CMCSA) and Microsoft (MSFT) have already been showing interest with acquisitions and in-house developments. (Microsoft owns and publishes Top Stocks, an MSN Money Site).

There's a reason there's suddenly so much interest in home automation. The industry is expected to soar from its current estimated value of $570 million to $2.6 billion in 2017, according to ABI Research.

So what's the best pure play on this booming market? It appears to be Control4 Corp. (CTRL).

With nearly three dozen patents, the company is at the forefront of the "connected home" concept, with products for controlling lighting, music, video, temperature, security and communications. Control4's home automation software automatically finds and adds devices, which cuts down on the time it takes to connect them.
      
Although the U.S. housing market has rebounded since the depths of the financial crisis, it hasn't yet recovered to pre-crisis levels. As housing continues to rebound, more homebuyers are opting for the latest and greatest in home automation. This is the perfect market opportunity for Control4, whose products are currently in about 135,000 homes. The company's biggest opportunity, however, is the 94 million U.S. households with incomes of less than $100,000.

According to ABI Research, North America is the world's largest market for mainstream home automation. The U.S. residential market continues to be the focus for Control4, accounting for more than three-quarters of its revenue. However, there's plenty of room for the North American home automation market to grow, which is why Control4 has been building its sales force. Gaining more dealers and greater brand exposure should be one of the big revenue drivers for the company.

Beyond the North American market, there is still a big opportunity for international growth: Control4 currently sells its products in more than 80 countries. The company also has opportunities in markets other than single-family homes, including the hospitality industry and multi-unit housing.

Control4 also has been expanding its partnerships. At this month's International Consumer Electronics Show, TiVo (TIVO) announced it would team with Control4 to offer its recording services through Control4 devices. In addition, Control4 inked deals with Nest and Dish Network (DISH) during the third quarter to help develop its own home integration software.

A look at Control4's balance sheet shows it has over $82 million in cash, equal to $3.62 a share, and only $3.3 million in debt. At current prices, 13 percent of its market cap is covered by its cash balance, which gives the company a nice cushion. With the company already profitable and expected to post earnings per share (EPS) of $0.33 this year and $0.43 next year, there is no burn rate that we have to worry about. Cisco Systems (CSCO) has also given Contro4 a vote of confidence with its ownership stake of 7.4 percent.

Risks to consider: The biggest risk we see is that the home automation space is about to get more crowded. Not only are Silicon Valley startups like Nest getting in on the action, but big players are looking for their share, too.

Action to take:
Buy Control4 with upside to $35. A competing home automation company, Universal Electronics (UEIC), is up 100 percent over the past 12 months -- but Universal's EPS is expected to grow by 17 percent next year. Compare that with Control4's expected EPS growth of 30 percent. In addition, the five analysts who follow Control4 all have "buy" ratings, and with the recent pullback in the stock, the upside is over 25 percent from current levels.

Marshall Hargrave does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.

More from StreetAuthority

2Comments
Jan 24, 2014 9:35AM
avatar

Of course its down almost 10% - Why else would this Charlaton say buy it at $35 ?

 

Stick with Large Cap - Iconic - Dividend Paying Stocks and leave these MSN Gamblers in the Dust !

Jan 23, 2014 9:14PM
avatar

Buy Control4 with upside to $35?

 

It's down 10% toady around $27!  I think I'll wait for it to go down to $12 and keep my Honeywell?

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

105
105 rated 1
271
271 rated 2
420
420 rated 3
633
633 rated 4
492
492 rated 5
532
532 rated 6
725
725 rated 7
515
515 rated 8
343
343 rated 9
140
140 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
EOGEOG RESOURCES Inc10
SWNSOUTHWESTERN ENERGY COMPANY10
TAT&T Inc9
COPCONOCOPHILLIPS9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.