Smart Rent, Inc. (SMRT) Analysis: Positioning Among Top Technology Penny Stocks for Investment
Shahzaib Wahid
9 min read
We recently compiled a list of the10 Best Technology Penny Stocks to Invest in Now. In this article, we are going to take a look at where Smart Rent, Inc. (NYSE:SMRT) stands against the other technology penny stocks.
According to the U.S. Securities and Exchange Commission (SEC), a penny stock trades for less than $5 per share. Penny stocks are often associated with growing companies with smaller market caps, limited cash flow, and restricted resources. However, it allows the investors to reap benefits from the long-term growth of the company, though these stocks are cheap to invest in they carry a greater risk of loss to the investors.
A higher level of volatility and lower liquidity sets them apart from regular stocks. In other words, higher volatility suggests that investors should expect a drastic change in prices in a given period, resulting in a potential gain or loss. Penny stocks may confuse an investor due to speculations and an inherent uncertainty in gauging its price fluctuation and therefore, these securities are suitable for investors that have a high tolerance for risk.
In addition, a low level of liquidity indicates that these stocks are difficult to sell because there may not be enough potential buyers available. However, not all penny stocks are the same, a diligent investor needs to find stocks that may be undervalued by the market but have the upside potential of growth in the future.
Similarly, there are plenty of good quality penny stocks in the technology sector that are suitable picks for investors looking to invest for long-term growth returns. Before discussing the list, let’s first explore the growth of the technology industry over the past years:
The year 2021 was a memorable one for the tech industry as COVID-19 accelerated digital transformation across enterprises and the demand for remote-work-related hardware and software increased considerably. Moreover, the shortage of semiconductors made headlines as chip manufacturers could not keep up with the surge in demand. The global IT spending grew nearly 10% compared to the previous year.
The technology sector faced challenges in the past two years due to high interest rates, elevated inflation, and considerable macroeconomic and global uncertainties like supply-chain disruptions amid Russia’s invasion of Ukraine. These events contributed to softening of the consumer spending, lowering demand, and reduction in the workforce in 2022. The headwinds continued in 2023 with the downsizing of the labor force and a slight weakening of consumer spending.
Looking forward, economists have assessed a lower risk of recession and tech analysts are optimistic that the tech industry can make a comeback with modest growths in 2024.
Role of Gen-AI in the uplift of the Technology Industry:
Generative AI is a form of machine learning that uses patterns in training data to generate new text, video, images, code, or music that can potentially be indistinguishable from what humans can create. Improvement in transformer-based neural networks in language models has enabled an AI boom in the industry, one such example is Chatgpt.
Companies are integrating AI into their day-to-day operations, and executives across the globe are recognizing the importance of AI in organizing data. According to a forecast by Bloomberg Intelligence, the generative AI market is projected to grow at a CAGR of 42% by 2032 and reach a market size of $1.3 trillion in 2032 from $40 billion in 2022.
Historically, the demand for semiconductors has been largely driven by mobile computing and its use for manufacturing processor chips. However, at present, we witness a novel source in the form of Gen-AI that is accelerating the demand for semiconductors. According to research, the demand for powerful semiconductors could boost the sales of the semiconductor chip industry to $1 trillion by 2030 from $500 billion today.
In addition, the software development service industry is a formidable market with high growth potential for small companies. According to a report by Cognitive Market Research, the global software development service market size was $409.2 billion in 2022 and is projected to grow at a compound annual growth rate of 10.5% from year 2024 to 2031.
Our Methodology:
To compile this list of the 10 best technology penny stocks to invest in, we analyzed Insider Monkey’s database of hedge fund sentiment of 920 elite hedge funds and their holdings tracked at the end of the first quarter of 2024. To draft this list we filtered tech stocks trading under $5 with a price-target upside of over 30%, and 50 – 70% of shares owned by institutions. We ranked those stocks based on the number of hedge fund holders and then arranged the list based on the ascending order of hedge fund sentiment towards each stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A builder wearing a hard hat admiring a newly constructed smart home.
Smart Rent, Inc. (NYSE: SMRT) is an enterprise that provides software and hardware solutions to rental property owners, homebuilders, residents, and developers. Smart Rent’s smart Apartment platform provides home automation that connects all devices to a single dashboard and empowers the community to automate daily operational processes.
In its financial highlights of Q1 2024, Smart Rent, Inc. (NYSE:SMRT) reported revenue of $50.2 million which decreased by 22% year-over-year. However, the gross margin improved reflecting the company’s strategic change to focus on profitable growth.
Hardware revenue decreased by $8.3 million while professional services revenue decreased by $9.3 million. The decline in hardware revenue was primarily the result of modifications in the product portfolio weighted by the new Alloy SmartHome hardware and a reduction in the number of units shipped. The decrease in the deployment of new units affected the revenue of professional services.
Although SmartRent, Inc. (NYSE:SMRT) underperformed in terms of revenue in other divisions yet there was a significant improvement in SaaS revenue of $11.9 million, a 32% year-over-year growth. The primary drivers for this growth were a 24% increase in units deployed coupled with upselling and cross-selling of comprehensive platform solutions.
This growth is attributable to the company’s commitment to improving the scalability of software solutions keeping in line with the growing demands of the rental housing market. The improvement in scalability was demonstrated by the launch of a new software feature, a self-guided home tour service upgraded with answer automation, this feature enhances the customer experience visiting properties and saves significant time and cost for the leasing teams.
On April 8, 2024, Smart Rent, Inc (NYSE:SMRT) announced the launch of a purpose-built multifamily-specific probe sensor called the Alloy SmartHome leaksensor+. The sensor is compatible with the SmartHome hub+ and integrates perfectly to detect any potential water leaks because it is resistant to the effects of humidity.
For the first quarter, the total gross margin improved to 38.5% from 14.0% a year ago while the SaaS gross margin improved to 75.1% from 73.4% a year ago. Total gross profit increased by over $10 million in Q1 reaching $19.4 million from $9.1 million last year. The margin expansion was primarily driven by the diversification of the product mix, in particular the launch of Alloy SmartHome hardware and operational improvements.
In addition, with a positive growth outlook, the company increased its number of units deployed by 24% reaching 750,000 units from 602,556 a year ago. Furthermore, Smart Rent, Inc. (NYSE:SMRT) posted an EBITDA of $400,000 beating its guidance and ending the second consecutive quarter with a positive EBITDA, zero debt, and a stable net cash position of $204.95 million.
Though Smart Rent, Inc. (NYSE:SMRT) has shown some resilience in gross margin and improved its EBITDA by narrowing its net losses to $7.7 million, the company missed its earnings expectations, it reported an EPS of $-0.0378 whereas the analyst’s expectations were $-0.02.
The decline in earnings expectations is attributed to the decrease in overall revenue, if we compare with Q1 2023, the revenue declined by over 22% in this quarter. In addition, the operating expenses increased to $29.6 million compared to $24.4 million in Q1 2023.
Furthermore, the company had a contractual dispute this year with a supplier which led to an accrual of $5.3 million. $5 million of which is to be paid for the expected return of the inventory and $300,000 is to be paid in terms of cash, this might have an impact on investors’ confidence and might affect the share price of the stock.
Speaking of the share price, over the past year, the company’s share price has declined by over 38%. For instance, on September 8, 2023, Bleeker Street Research presented a report and alleged that “smart locks” a commodity distributed by SmartRent company to multi-family properties were sourced from “a Croatian supplier that had a known history of security vulnerability”.
This report had a significant impact on stock price, it shattered investor’s confidence and the stock price fell about 9% and came down to $2.8 per share in just 3 days. Moreover, the company struggled to keep its share price stable owing to the changing market trends, slow growth in the rental market, increased supply, and changes in consumer preferences over time.
Despite the high volatility in share price, and headwinds like a challenging macro environment such as interest rates, slowing rent growth and the demand for community Wifi remains strong. The company is expanding its community Wifi offerings, benefiting from its strong financial position, moreover, the firm aims to capture a significant market share in the rental sector market. Looking forward, the company expects to break even on professional services margin and has announced its guidance of $260 – $290 million in revenue.
According to Insider Monkey’s database, 17 hedge funds held stakes in this growing penny stock and the total value of hedge fund holdings is $91.528 million.
Overall SMRT ranks 7th on our list of the best technology penny stocks to buy. While we acknowledge the potential of SMRT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SMRT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
