Among the more intriguing growth stocks in the market right now, Alarum (NASDAQ: ALAR) hasn’t seen the kind of growth stock most investors would immediately think of. The company provides internet access and web data collection solutions across the world, as well as a number of SaaS enterprise data collection services (helping companies aggregate data from the web). In essence, this is a company that provides the backbone of the internet to millions of individuals around the globe. So, it’s a systemically-important company, ensuring secured and encrypted connections and providing security against a range of data and privacy threats. For those betting on a brighter digital future, these are the sorts of companies that ought to generate more attention.

Thus far, headlines in this market have been dominated by the rise of artificial intelligence. Companies like Nvidia (NADSAQ: NVDA) that provide the key infrastructure (chips and software) to support this revolution have seen their valuations explode. One might suggest that Alarum’s core business model is one that should have come along for the ride.

To a certain extent it has, with this stock becoming better than a 10-bagger over the past year from peak to trough. However, with only one analyst following this company, it’s kind of hard to set a consensus target (a consensus target of one isn’t much to go on).

That said, let’s try to place a valuation on this internet connectivity stock.

Where Do Analysts See This Stock Going?

Interestingly, the one analyst providing coverage on ALAR stock has been forced to continually move their price target higher. Trading around $33 per share at the time of writing, the Alliance Global analyst covering this stock has a $35 price target on the name. Of course, this target has continued to surge alongside the company’s stock price, rising from just a few dollars per share in 2023 to the $35 level today.

There are plenty of instances in which this is the case. Often times, analysts find themselves behind the curve, chasing a company with incredible performance higher, or racing to downgrade a stock in the opposite scenario. With so much emphasis on IT-related infrastructure plays (this extends beyond chips to utilities companies and other key infrastructure stocks), this move in Alarum certainly makes sense.

The question many investors have is whether this particular analyst has once again undersold this company’s potential. The company’s usage-based business model, which allows for data collection and internet privacy solutions, should see incredible growth as AI services become mainstream. Every company launching an AI application will seek out enterprise solutions to gather web data and utilize these data for their intricate large language models.

As of now, forecasts for just how much usage will increase over time are all over the place. There are some analysts out there who think this AI trend could last for decades, and others who believe a significant amount of forward demand may have already been pulled forward. So, we’ll have to watch Alarum’s growth and performance closely in the coming quarters.

The Bull Case for ALAR Stock

In my view, Alarum’s enterprise SaaS solutions are likely to see an incredible near-term surge in usage, which should continue to support its stock price. Most of the commentary around Alarum centers on the idea that as usage increases for web data collection services, Alarum’s valuation should grow in lockstep. I’m of the view that valuation matters, and it’s always a question of how much of this future demand has been baked into the company’s valuation. That’s harder to discern.

That said, given forward earnings estimates,  ALAR stock is currently trading just shy of 24-times forward earnings. That’s not expensive, particularly if the company can achieve profitability sooner than expected.

The company has been scaling down investments in its consumer internet access segment, focusing on investing in its AI data collector and website unblocker. These are the key SaaS drivers investors care about, making this pivot a prevalent one for those who think earnings growth is on the horizon.

I think this is a stock that could reasonably trade at a 40-times earnings multiple (or higher), in line with other AI-related infrastructure stocks with high growth rates. Alarum is currently growing its revenue at a 47.5% year-over-year clip. So, on a price-earnings-to-growth basis, this stock does appear cheap at less than 0.5-times. I think a stock like Alarum should trade closer to a 1 PEG, all things considered.

Alas, my price target on Alarum now would come in around $70 per share on fundamentals alone.

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