By intuition and basic recognition of contemporary economic conditions, smart home and property operations provider SmartRent (SMRT) appears a smart buy in the equities market. With so many people forced out of the housing sector due to blistering inflation and rising borrowing costs, cynically, corporate landlords win out. To bolster their offerings, it makes sense for them to integrate smart home functions, thus lifting SMRT stock.
In all fairness, landlords have done a “great” job fleecing the flock, stretching renters to the breaking point – but arguably not beyond it – amid radical changes in the post-COVID-19 economy. However, human greed being what it is, there’s no guarantee that rental property owners (particularly corporate apartment complex operators) won’t overdo it.
However, a combination of rental data and consumer sentiment-related metrics suggest that bargaining power may gradually return to the renter category. If so, investors will want to be skeptical about the positive implications of unusual options activity surrounding SMRT stock.
SMRT Stock Attracts Options Traders
Following the close of the Aug. 8 session, SMRT stock ranked among the top highlights for unusual stock options volume. Specifically, total volume reached 6,003 contracts against an open interest reading of 8,185. Further, the delta between the Tuesday session volume and the trailing one-month average metric came out to 944%.
Interestingly, sentiment was geared heavily toward the bullish side of the spectrum, with call volume hitting 5,993 contracts while put volume reached only 10 contracts. This pairing yielded a miniscule put/call volume ratio of 0.0017. Further, the ratio for open interest came in at a rather lowly 0.11, on paper favoring the optimists.
Adding to the positive vibes, the Barchart Technical Opinion indicator rates SMRT stock a 64% buy. While the present setup may signal near-term choppiness, the gauge also suggests that the longer-term framework supports a continuation of the current trend, which is generally positive. Since the beginning of this year, SMRT gained almost 48% of equity value in the open market.
Bolstering confidence is the strong buy consensus view among Wall Street analysts. Notably, this assessment breaks down as four strong buys, two moderate buys, one hold and significantly zero sells. Even better, the mean price target stands at $5.22, implying over 44% upside potential from the time-of-writing close of $3.62.
Further, the low price target sits at $3.30. While this forecast implies 8.8% downside risk, that’s not a terrible profile because the high-side target calls for $8, which implies a 121% return. In other words, for exchanging a 9% risk, you could more than double your money. It seems attractive considering the bullishness among options traders.
Still, it’s also worthwhile to be cautious. Just recently, the company posted its results for the second quarter. Net loss per share came out to 5 cents while revenue landed at $53.4 million. While both these figures were favorable compared to prior-year comparisons, the figures were mixed against analyst expectations, which called for loss per share of 5 cents and sales of $53.58 million.
Apparently unimpressed, SMRT stock fell nearly 5% on Tuesday.
SmartRent Fights Against Unfavorable Fundamentals
During the early days of the COVID-19 pandemic, the Federal Reserve’s easy money policy incentivized those with adequate funds to purchase real estate under the thesis that they can lock in ultra-low rates. However, because of the rush of competition, it was inevitable that many would-be homebuyers would be left out in the cold.
With nowhere to go, corporate landlords were in prime position to advantage the situation with exorbitant rent increases. Indeed, data from the U.S. Census Bureau shows that the rental vacancy rate slipped from 6.8% in Q1 2021 to 5.6% in Q4 of the same year. Since then, however, the rental vacancy rate has been gradually moving higher.
Most recently, in Q2 2023, the vacancy rate clocked in at 6.3%. While it dipped slightly from Q1’s 6.4%, it rose conspicuously from Q2 2022’s 5.6%. Further, as mass layoffs, stubbornly high inflation and even outright evictions impose significant pressure on the consumer economy, regular folks will likely not be able to keep pace with scorching high rentals.
In fact, some renters might see relief as apartment construction blossoms. If the trend continues, apartment operators may have to be competitive on pricing. And that means spending less on nice-to-have-but-not-essential products such as home automation solutions. Thus, while SMRT stock might seem appealing on the outside, investors should take a skeptical approach.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
