What a time it’s been for SmartRent. In the past six months alone, the company’s stock price has increased by a massive 94.7%, reaching $1.55 per share. This run-up might have investors contemplating their next move.
Is now the time to buy SmartRent, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Is SmartRent Not Exciting?
Despite the momentum, we're cautious about SmartRent. Here are three reasons there are better opportunities than SMRT and a 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 13.2% over the last two years. SmartRent isn’t alone in its struggles as the Internet of Things industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time. 
2. Operating Losses Sound the Alarms
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
SmartRent’s high expenses have contributed to an average operating margin of negative 41.6% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.
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 26.6%, meaning it lit $26.63 of cash on fire for every $100 in revenue.
Final Judgment
SmartRent’s business quality ultimately falls short of our standards. Following the recent rally, the stock trades at $1.55 per share (or a forward price-to-sales ratio of 1.7×). The market typically values companies like SmartRent based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Like More Than SmartRent
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