Smart Home Stocks

It’s a Tuesday evening, and you’re heading home from a long, grueling day at work.

Traffic is slow as usual, and the summer heat is nearly unbearable. The last thing you want to do is arrive home to a house that’s been baking in the sun all day.

But utilities are expensive, and you weren’t going to leave central air running in an empty house for 10 hours — that would have been both a waste of energy and the money you just worked all day long to earn.

Fortunately for you, though, your mobile device has your back.

It noticed you leaving the office at 6:30 pm and getting into your car at 6:35, prompting it to ask, “Where are you headed, Mr. Jones?”

You tell your virtual assistant you’re heading home, and it immediately contacts your central air system and connected smart home.

These AI programs have a brief but meaningful conversation with each other, asking and answering questions such as:

What’s the temperature at the house? What’s the temperature in the car? How long will it take for Mr. Jones to get home in current traffic? Should I tell the fridge to prepare a glass of ice water?

By the time you arrive, your home has already cooled itself to the optimal temperature for your comfort. It’s also preheated the oven, turned on that baseball game you’ve been wanting to watch, and fixed the lighting to match your personal preferences.

Home Sweet Home

As Utopian as this scenario might seem at first glance, it’s actually not that far out of reach.

In the very near future, our homes will be smarter, more efficient, and more comfortable than ever before.

Our homes will talk to us, and we will talk to them — perhaps not always through words, but one way or another, these systems will know exactly what we need and when we need it. Most importantly, our new smart homes will make sure we get it.

In a speech last week at the IFA electronics show, Samsung (OTC: SSNLF) CEO Boo-Keun Yoon supported this view, telling his audience that smart homes will be arriving “at [a] speed we can barely imagine.” Yoon was quick to defy skeptics, saying:

“For many, it’s still just a vision. But change is coming, and coming fast. Remember how quickly, in just a few years, smartphones and tablets have changed our lives. I’m certain the home of the future will be woven into the fabric of our lives just as fast.”

Yoon isn’t just blowing smoke, either. Researchers are predicting 45 million smart home systems to be installed by 2018 and $100 billion in related revenue by the same year.

“The future homes will be flexible, protective and responsive. Technology will increasingly help people to live more independent lives as they age,” Yoon says.

The CEO went on to cite several catalysts for the “age of the smart home,” pointing out that 1 billion people will be over age 60 by 2023 and 60% of the population will be living in urban homes. Yoon also mentions a 200% increase in extreme weather conditions since 1990. All of these factors are expected to drive the need for connected homes.

Of course, Yoon isn’t promoting the idea for kicks and giggles — Samsung’s recent focus on smart homes follows the acquisition of SmartThings, a technology startup affiliated with 1,000 devices and ~8,000 applications related to smart homes and the Internet of Things (IoT).

With SmartThings’ applications and devices, you can manage home security, lighting, temperature, and even your laundry directly through your cell phone. The company even creates devices that can monitor the location of your pets and family while you’re away.

Ripe for the Picking

Samsung isn’t the first publicly traded company to dive into this space, nor is it the first company to acquire an IoT startup.

Executives at Cisco Systems (NASDAQ: CSCO) have been pitching the idea of “The Internet of Everything” for some time now and are predicting a $19 trillion market (that’s not a typo) over the next decade. Additionally, Google (NASDAQ: GOOG) gained much fanfare after acquiring smart home startup Nest Labs back in January for $3.2 billion.

If either Nest or SmartThings were publicly traded, you could imagine what the market’s reaction would have been, which is why it’s certainly worth speculating on smart home stocks with buyout potential at this point.

One of the hottest plays that fit this category is Control4 (NASDAQ: CTRL), a $333 million company that offers home automation solutions.

Launched in 2003, Control4 serves to connect all of your home devices by integrating home theater, music, security, mobile devices, and climate control into a single system. In other words, Control4 essentially functions as the operating system of your home, like Windows does on your computer.

For anyone still feeling a bit skeptical about this market, Control4’s recent success should help shed some of those jitters. The company can be considered the only smart home pure-play on the market and has posted consecutive revenue growth for the last seven years.

Despite plenty of skepticism over the bottom line and a triple-digit P/E, Control4 became profitable in 2013 and has lowered the latter figure to double digits. The company’s forward P/E sits at just 20.63, which is more than reasonable for a growing tech firm with major upside.

Yahoo! Finance shows $65 million in cash and just 2.4 million in debt for CTRL. Factor in potential buyouts from major players (Google bought Nest for 10 times Control4’s market cap), and CTRL seems like a must-own.

Until next time,

Jason Stutman

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