Investors looking for a consumer stock to help round out their portfolios may want to monitor AlarmForce Industries Inc., a security company trying to make a market comeback.
Shares of the Toronto-based company, known for its ear-worm TV and radio jingles, are down about 12 per cent over the past year. While the stock has outperformed the broader S&P/TSX composite index, its current price around $9.90 is about 25 per cent below its high near $12.50 two years ago and its 52-week high just under $12 last fall.
The thinly traded, small-capitalization stock has taken a hit in recent days, amid the overall market turmoil, after the company reported a 7-per-cent, year-over-year increase in revenue to $56-million, but a 36-per-cent drop in profit to just under $5-million. The decrease was driven by a one-time charge of $3.7-million, which included a writeoff of about 6,000 unpaid accounts and severance costs after a change in management last spring.
AlarmForce, which sells alarm monitoring and video surveillance for homes and businesses, as well as medical alert systems, also said last week it was shifting its focus away from growth in the United States in favour of Canada. While the U.S. economy is stronger over all, the company said it was getting better bang for its buck back home, where it generates 70 per cent of its revenue.
Acumen Capital Research analyst Brian Pow, the only analyst formally covering the stock right now, has a "speculative buy" on it and a $12.70 price target.
"The company is still in transition," said Mr. Pow, noting that new management put in place last spring is looking for ways to drive growth and improve earnings.
"Now they need to execute a new business plan. There's always risk when you're doing that type of thing."
The company's advantage is its "significant brand awareness," Mr. Pow said, as well as its adoption of new technologies that allow people to manage and monitor their home security cameras and control energy use with their smartphones. "If they can leverage that platform, which I think they can, to some extent, then I think they will gain some good traction."
AlarmForce's strong brand recognition in a growing industry, plus its debt-free balance sheet are positives for the company, said Peter Hodson, chief executive officer of 5i Research Inc., an independent research firm.
What's less attractive, Mr. Hodson said, is the slow growth, lack of a competitive advantage and the small dividend, yielding about 1.8 per cent.
While the company is making changes, "nothing has overly impressed us just yet," Mr. Hodson said. "Granted, it is still early days."
The company's decision to put less emphasis on growth in the United States is "unfortunate," Mr. Hodson said, because of the opportunity to bring in more U.S. revenue, "but, at the end of the day, it is probably the right decision."
AlarmForce CEO Graham Badun said he's been making a number of changes, such as the move to focus on the Canadian market and the writeoff of bad accounts, as part of the "growth mandate" he was given when he took the job in May, 2015.
"Part of this exercise of readying the company for growth is making sure we have a good foundation on which to build," Mr. Badun said in an interview.
He said the current stock price today reflects those changes, but the goal is to increase shareholder value longer term.
What's unlikely to change is the company's catchy marketing jingle, although there could be some tweaks down the road, Mr. Badun said.
Bruce Campbell, president and portfolio manager of StoneCastle Investment Management, is watching the stock, but said it doesn't have enough liquidity for him to want to buy it just yet. The low volume would make it difficult to unload the stock if he wanted out.
"If things were to change with the company, we would move it up our radar screen," Mr. Campbell said. "But it would have to be something spectacular for us to ignore the liquidity issues."