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Control4: A Good Play On Home Automation

|Includes: Control4 Corporation (CTRL)

I initiated a position today in Control4 (NASDAQ:CTRL). This company went public in the fall on 2013 and has reported solid performance and guidance to date as a public company. The stock was up nicely after the IPO before it spiked to $32.50 when Google bought Nest. The company subsequently sold off to the current level which is at a discount to the trading range post IPO. Home automation is similar to Data Analytics in that it has been around for many years, but without any real advocacy. Now Data Analytics is exploding with companies such as DATA valued at astronomical levels. Home Automation is coming into it's own, thanks to the awareness caused by the Nest acquisition and the number of technology companies becoming interested in the space. Control4 is a reasonably valued leader in the space and one that I picked as a longer term investment.

CTRL has a business mix of approximately 30% new construction and 70% retrofit. The trend over the past couple of weeks appears consistent with weak new housing start statistics, yet this company only gets 30% of its' business from this activity and with their relationship with Toll and so much headroom in the new housing arena, they could see very nice growth here even with a modest decline in housing starts. The company expects to see nice growth internationally as they are very early on in their expansion overseas.

Cisco (NASDAQ:CSCO) is a 3% owner in CTRL. I also believe this company has a higher likelihood of being an M&A target with many companies including CSCO expanding their interest in this market. Microsoft (NASDAQ:MSFT) is a likely candidate. They have a strong presence in the home already with XBox which appears poised to become a hub for expanded home automation looking forward. CTRL has an interesting call premium, likely because of this M&A possibility. I expect to trade off the acquisition upside and capitalize on this premium periodically.

Disclosure: The author is long CTRL, MSFT.