Wednesday, December 13, 2017

A current AIM International Fund Holding: Control4 Corp. (CTRL) by: Alex Czachor "Leading Player Within Home Automation"

Control4 Corp. (CTRL, $33.81): “Taking Control of the Expanding Smart Home Market”

By: Alex Czachor, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Control4 Corp. (NASDAQ: CTRL) is a provider of smart home and business solutions in which provide consumers with the ability to integrate audio, video, lighting, temperature, security, communications, network management and other functionalities into a unified automation solution.   

• Currently CTRL has about 300k homes within its customer base primarily targeting the high-end housing market.  Of the 14.2 million homes with disposable incomes greater than $150k, CTRL currently holds approximately 2% of the total market.

• The company is also well positioned within a growing market.  According to Zion Market Research, the global smart home market was valued at 24.10bn in 2016 and is expected to reach 53.45bn in 2022, representing a 14.5% CAGR between 2017 and 2022.

• Strategic partnerships such as the one with Amazon could fuel huge growth for CTRL in the near term.  CTRL products are already integrated with Amazon’s Echo, Dot, and FireTV. 

• Just recently the company was named for the third year in a row as the top home automation provider according to CE Pro’s Top 100 Brand Analysis report cementing them as a clear leader within the market.

Key points: As disruptive technology continues to grow and advance within the global market, CTRL is right there growing with it.  The company is working to completely change the home owning experience through connecting virtually anything home related into a central management system.  With increased convenience and simplicity smart homes will be the future of homes for builders, with the smart home market forecasted to grow at a 14.5% CAGR through 2022. 

CTRL has benefited from this strong industry trend and will continue to benefit as it is a clear leader within the home automation market.  Additionally, the company has made key strategic partnerships with companies such as Amazon, in which CTRL’s platform is already integrated in products like the Echo, Dot, and FireTV.  This helps to improve confidence that the company has a great avenue for expansion into the future. 

As mentioned before the company primarily focuses on the high-end market which can be considered homeowners with above $150k in disposable income, which makes up approximately 14 million homes.  This represents just under 2% penetration into this market, giving the company a large runway in an industry that is likely to grow rapidly over the next decade.

Another key point to bring up is in regards to the company’s financial standings.  Financially the company is debt free and recorded approximately $210 million in revenues last year.  Due to the low cost aspect of the business the company enjoys gross margins around 50% which helps benefit the bottom line.  With the excess cash being generated management has noted that they will be reinvesting aggressively into new products and potential strategic acquisitions moving forward.  The company is well positioned financially to expand and grow penetrating the large addressable market even further.      

What has the stock done lately?

Since the company’s Q3 earnings report at the beginning of November the share price has appreciated approximately ~23%.  Primarily driven by a better than expected quarter in regards to both top line and EPS performance.  Due to this strong performance management raised its FY17 guidance for both revenue and EPS.  The company now expects revenue in the range of $242.5-244.5mn up $3mn from prior guidance.  Additionally EPS guidance was increased approximately $.10 to a range of $1.13-1.16 in comparison to prior guidance.                

Past Year Performance: Year-to-date the company’s share price has appreciated ~208% with the AIM fund capitalizing on approximately 117% of this growth since its inception on February 24th 2017. During the year the company witnessed a 52 week price range between $10.08 and $34.73.   

My Takeaway:
As smart home technology continues to gain traction and grow CTRL will likely benefit as it is a leading player within the home automation market.  Additionally with strategic partnerships such as with Amazon, it is likely that the company continue to expand and see huge growth as the demand for products such as the Echo or FireTV continue to strengthen.  Since its inception into the AIM portfolio the company’s share price has appreciated approximately 117% and is currently one of the top ten performers within the AIM small cap fund.  Due to the strong likelihood that the smart home market will continue to grow coupled with CTRL’s strong position within the market as well as its commitment to innovation and its ability to expand through inorganic means it is recommended that the AIM small cap equity fund continue to hold Control4 (ticker: CTRL) as there continues to be strong opportunity for growth.