The Smart Way To Invest In The 'Smart Home'

Feb 20 2014, 8:18pm CST | by

Disclosure: I own QCOM,ELON,CTRL stocks

For years, ‘smart home’ sounded like science fiction. For a good reason: many of the pieces that turn an everyday home into a ‘smart home’ either weren’t there, or they were too expensive for the average homeowner.

But in recent years, the proliferation of mobile Internet and smartphones has turned the fiction into reality.

That could explain why Smart Home was at the top of the list of the “next big things” in the 2014 CES; and why technology giants like Qualcomm and Google are investing in the ‘smart home.’

Qualcomm unveiled a software platform in the 2013 CES that will allow household devices to communicate with each other. Google recently acquired Nest Labs, a private company that makes smart home controls like thermostats and smoke detectors – suggesting that Google may also become known for its smart home presence.

Investors have taken notice, chasing after the shares of two smaller companies: Echelon Corporation and Control4 Corporation. Both are considered to be ‘pure plays’ in the smart home industry, as discussed in a previous piece.

Echelon Corporation has long been a pioneer in connecting everyday devices to the Internet — though it has become focused on energy control networking solutions. Its products enable everyday devices — such as air conditioners, appliances, electricity meters, light switches, thermostats and valves — to be inter-connected. This technology is certainly making the company a pure play in the smart home industry.

Control4 Corporation (NASDAQ:CTRL) is another pioneer in the technologies that connect everyday devices, though it was established much later than Echelon. Its Control4 Home Operating System allows music, video, lighting, temperature, security, communications and other devices to communicate with each other. In addition, it offers 4Sight subscription options, which allow for the remote control and monitoring of home devices through smartphones, tablets, and laptops.

Recently, Control4 Corporation was chosen by homebuilder Toll Brothers to provide smart home technology for new homes.

Company Operating Margins Qtrly Revenue Growth (yoy) Total Debt Total Cash (mrq)
Echelon Corporation -11.18% -23.8% 19.1M 57.63M
Control4 Corporation 4.61% 17.60% 3.32M $82.49M

Source: Yahoo.Finance.com

The two companies reported mixed results for the last quarter. Echelon Corporation reported a loss of 21 cents for last quarter. Sales were $18.1 million, down from $23.8 million in the same period last year. Control4 reported a gain of $0.09 per diluted share. Revenue for the fourth quarter was $35.8 million, compared with $30.7 million for the fourth quarter of 2012, representing 17% year-over-year growth.

Obviously, Control4 is the smart way to ride the growth in the smart home industry. But I’ll stay with Echelon, too, as its technology portfolio could make it an attractive acquisition target, especially at these valuation levels.

Source: Forbes Business

 
 

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