Resideo Technologies Inc: Global Home Tech Play Could Double

Resideo Stock Trades at Major Discount to Sales

When you look at the valuation of technology stocks, the majority of them are trading at many times their sales.

So when there’s an opportunity to pick up stocks at a discount to sales, it’s compelling. That’s the case with Resideo Technologies Inc (NYSE:REZI). It presents an opportunity to add shares of a profitable global company that delivers steady revenue growth.

Resideo provides electronic products and solutions to improve the comfort of homes, including air, energy, security, and water solutions.

REZI stock has easily outperformed the S&P 500, gaining 34.3% this year and 151.5% over the last year.

Advertisement

But while the gains have been impressive, I believe there is much more to come, given Resideo stock’s relatively cheap valuation.

Resideo Technologies Inc Destroying S&P 500

A look at the below chart shows an impressive rally by REZI stock from the trough in March 2020 to the peak on June 8.

Highlighted by a series of channel breakouts since the March 2020 low, Resideo stock has seen its 50-day and 200-day moving averages trend higher.

REZI stock has pulled back from its high; it’s currently in a tight sideways channel hovering just below its 50-day moving average. Any moves by Resideo stock down to its 200-day moving average at $23.53 would be an opportunity.

Chart courtesy of StockCharts.com

Steady Revenue Growth; Profits Set to Jump

A look at Resideo Technologies Inc’s five-year revenue picture shows its revenues steadily holding at $4.0 to $5.0 billion, including four straight years of growth.

Fiscal YearRevenues (Billions)Growth
2016$4.46N/A
2017$4.521.4%
2018$4.836.8%
2019$4.993.3%
2020$5.071.6%

(Source: “Resideo Technologies, Inc.” MarketWatch, last accessed July 8, 2021.)

But while the revenue growth is only in the single-digits, the company’s ability to deliver consistency is positive.

And the revenue outlook is expected to improve.

Resideo is expected to ramp up its revenue growth rate by 11.7% to $5.7 billion this year and by 5.1% to $6.0 billion in 2022. (Source: “Resideo Technologies, Inc. (REZI),” Yahoo! Finance, last accessed July 8, 2021.)

Resideo Technologies Inc produced earnings before interest, taxes, depreciation, and amortization (EBITDA) income in each of the past five years, including a nice rebound in 2020.

Fiscal YearEBITDA (Millions)Growth
2016$559.0N/A
2017$512.0-8.4%
2018$564.010.2%
2019$375.0-33.5%
2020$438.016.8%

(Source: MarketWatch, op. cit.)

The company also delivered generally accepted accounting principles (GAAP) earnings-per-share (EPS) profits in four of the last five years.

Fiscal YearGAAP Diluted EPSGrowth
2016$1.43N/A
2017-$3.19-122.6%
2018$3.30203.5%
2019$0.29-91.2%
2020$0.290.0%

(Source: MarketWatch, op. cit.)

After the earnings sluggishness over the last two years, Resideo Technologies Inc is expected to report profits of $1.42 per diluted share in 2021 and $1.84 per diluted share in 2022. (Source: Yahoo! Finance, op. cit.)

The company also generated positive free cash flow (FCF) in three of the past five years, including an impressive $174.0 million during the pandemic in 2020, up by 328.9% from 2019.

Fiscal YearFCF (Millions)Growth
2016$91.0N/A
2017-$12.0-113.2%
2018$398.03,416%
2019-$76.0-119.1%
2020$174.0328.9%

(Source: MarketWatch, op. cit.)

Analyst Take

Institutional support for Resideo Technologies Inc is strong, and it’s been rising. About 93.6% of REZI stock is currently held by 521 institutions. (Source: Yahoo! Finance, op. cit.)

Moreover, insiders have been buying shares of Resideo stock. Over the last six months, insiders added a net 143,125 shares.

The valuation remains attractive despite the run-up. Resideo Technologies trades at 0.71 times its consensus 2022 revenue estimate.

And while Resideo trades at 16 times its consensus 2022 earnings estimate, its price/earnings-to-growth (PEG) ratio of 0.24 suggests that this is a cheap stock.