Resideo Technologies (REZI) – Catching the Falling Knife

I woke up in a hot Friday morning and turned on my computer while making my glass of tea. The US market has just closed and its time to look at my watchlist and look at what’s been happening the night before. To my surprise, another opportunity has come up. A stock in my watchlist is down -27% in one day. Its time to go to work and review why I added this stock in my watch list.

I just made a post that an investor’s job is to catch falling knives. I didn’t imagine that I’ll be called into duty this fast.

Resideo dropped from $25 to ~$18 in one day.

The company is called Resideo Technologies (stock symbol REZI). They make home security products like cctv, smoke alarms, and heating equipment for homes. They are a subsidiary of the well known brand Honeywell. Their product is in the top 5 market share in home security equipment in the United States.

Company profile:
Resideo Technologies, Inc. is a provider of security solutions primarily in residential environments. The Company operates through two segments: Products and Distribution. The Products segment consists of Comfort & Care solutions, and Security & Safety solutions. Its Comfort & Care solutions include temperature and humidity control solutions, thermal solutions, water solutions, air solutions, remote patient monitoring software solutions and software solutions. Its Security & Safety solutions include security panels, sensors, peripherals, wire and cable, communication devices, video cameras, awareness solutions, cloud infrastructure, and installation and maintenance tools. Distribution segment distributes security and low voltage electronics products, which include security, safety and audio visual products and related accessories. It also offers fire alarm control panels, fire detection equipment, fire notification equipment, wire, networking and professional audio visual systems.

Why is it down?

Because it disappointed analysts forecast. The forecast was to make $1.25 billion in revenues. But Resideo actually made $1.26 billion (a better one). So why is it down? Well, because they expected the net earnings to be $500 million while it actually made just $400 million.

But here is where the analysts are confused. The company actually do earned $500 million. Revenues are better than expected. That missing $100 million was actually sent back to the parent Honeywell as interest payment. I don’t think its that bad. That loan was from the parent company and not from a bank. As management also said that they are doing quite well.

The following night, I bought as much as I can and even sold some of my stocks to buy Resideo, while watching a live steam of Dota 2. There is little risk in buying and there is a lot of potential upside that is worth taking.

P/E is around 5 or 6 when I bought in at $19. The company expects to grow 5%. If the public realize that Resideo deserves a higher P/E, we could see a great move up in price. When will that happen, I don’t know. But that’s our job isn’t it? Waiting. Always waiting, like crocodiles waiting to strike.

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