Security Stocks Rebound in 2016
Overall, publicly traded security companies rebounded in 2016 to post an estimated gain in excess of 7 percentage points over the prior year when returns dipped into the red.
Residential on the Rise
Imperial Capital estimates the total available home control and automation market was valued at $23 billion in 2016, and rising. Expectations are for the market to increase to $61 billion by 2024, amounting to a compound annual growth rate of (CAGR) of 12.9%.
The swelling residential market is considered large enough to allow throngs of providers to successfully compete, from the highly customizable home solutions provided by Crestron, Savant and Control4, to ADT, Vivint and European-based Verisure.
Include in that group are select DIY products that have a strong reputation and brand recognition, such as Ring’s WiFi-enabled video doorbell. The smart home industry was viewed as being more focused in 2016 than the year prior.
Imperial Capital noted a decrease in the number of DIY companies, but an increase in the number of firms that are successfully penetrating the market on their own, via partnerships or with software-as-a-service (SaaS) platform company Alarm.com.
Traditional alarm companies that are transitioning their business models to offer and service home controls solutions remain well-positioned to compete for a large share of the pie.
This is being aided, in part, by a reduction in the cost of wireless systems and decreasing creation cost multiples.
Attrition is also beginning to tick downward for traditional alarm dealers. Imperial Capital projects security dealers can grow at a rate of 6% to 8% for the next five to six years, which is the length of Imperial’s investment perspective.
By 2024 security dealers are forecast to hold a significant chunk of market share, but no longer a majority of the business.
Multisystem operators (MSOs), with a market share of 1% or 2%, are projected to increase penetration to 19% by sheer size alone by upselling existing customers and poaching from smaller providers.
Consumer Electronics & Related Security Stocks
In contrast to flat performance in the physical-logical access control space, investors who traded in consumer electronics and related security stocks in 2016 are likely very glad they did.
Overall, the stock price of 48 public companies engaged in home automation, security, Internet of Things (IoT) and consumer electronics tracked by SSI sister publication CE Pro rose a robust 22.4%, outperforming the Dow Jones Industrials’ 13.4% increase.
The 22% growth is a nice comeback from 2015, when consumer electronics stocks fell 11.8%. In the list of 48 companies, 36 companies had stock price increases, while 12 fell. (See stock chart on next page.)
The list itself is always evolving. This year, several companies were dropped from the list due to buyouts and in many instances those companies went private, namely Nortek, ADT and AVAD.
In addition, several larger public companies gobbled up others, such as AT&T buying DirecTV, Samsung acquiring Harman, Johnson Controls buying Tyco, and Charter Communications purchasing Time Warner Cable.
New additions to this year’s table are Tessera Technology, Napco Security Systems, IAC Interactive (owners of HomeAdvisors.com and ServiceMagic), Amazon, Ametek (bought ESP/SurgeX) and Canon (acquired Axis Communications).
The company with the biggest stock price increase last year was TiVo, which rose a whopping 134%. The company was acquired in April 2016 by Rovi Corp., which then melded into the public stock of TiVo. The purchase was for $10.70 per share, which is half the stock price TiVo finished the year.
The new company combines TiVo’s user experience and content discovery for traditional television, OTT and on-demand content with Rovi’s strength in guides, personalization, advertising, analytics and Cloud services. The new company serves more than 28 million households.
The next big winner was Sharp whose stock also more than doubled (up 130%), albeit from a tiny $1 per share to $2.30 per share. The Japanese TV panel manufacturer recently flexed its muscle by warning Samsung it would stop providing glass for its flat panel TVs.
Another big stock winner in 2016 was Tessera Technologies (up 97%) after its acquisition of audio solutions provider DTS in September for $850 million.
Other companies with significant gains were Logitech (up 65%); Alarm.com (up 65%) just one year after its IPO; Charter Communications (up 61%) after its acquisition of Time Warner Cable; and Belden (up 57%).
It is always interesting to look at the “pure-play” stocks that are focused on the custom installation industry versus just being a division in a larger company. Napco, for example, had a solid year growing 40%.
Control4, one of the few pure-play home automation companies on the list, saw its stock grow 40% in 2016 to $10.20. That is still down from where it started the year in 2015 when it sold for $15.37 per share.
The most expensive stocks to buy are Samsung (equivalent of $1,498 per share in Korean won), Alphabet/Google ($776) and Amazon ($758).
The cheapest stocks on the list are HH Gregg ($1.42), Sharp ($2.30) and Toshiba ($2.50). It’s never a good sign when the economy is cooking and the stock market is setting records, yet your company stock has fallen.
Unfortunately, there were a few companies that struggled in 2016. The biggest loser was HH Gregg, the Indianapolis-based retailer with 200+ brickand-mortar locations and a solid online retail presence saw its stock fall by 61%, from $3.66/share to just $1.42.
You might think it is because “retail is dead,” but Best Buy had a solid 40% increase in 2016.
Security Is Our Business, Too
For professionals who recommend, buy and install all types of electronic security equipment, a free subscription to Security Sales & Integration is like having a consultant on call. You’ll find an ideal balance of technology and business coverage, with installation tips and techniques for products and updates on how to add sales to your bottom line.
A free subscription to the #1 resource for the residential and commercial security industry will prove to be invaluable. Subscribe today!