Is Resideo Technologies (REZI) Trading at a Significant Discount to Fair Value?

In the ever-evolving smart home and building technology sector, Resideo Technologies (REZI) stands out as a compelling contrarian value opportunity. Despite its recent financial turbulence, a combination of discounted valuations, robust industry tailwinds, and improving operational metrics suggests the stock is undervalued by approximately 11–20% relative to intrinsic value estimates. Below, we dissect the evidence supporting this thesis.

A P/S Ratio Far Below Industry Averages

Resideo's current price-to-sales (P/S) ratio of 0.72x is starkly out of line with both its sector and broader peer group. The Building industry average P/S stands at 1.70x, while the broader peer group averages 3.58x. Analysts have estimated a fair P/S ratio of 1.56x for Resideo, implying the stock is trading at a 54% discount to its intrinsic value based on revenue multiples. This discrepancy is particularly striking given Resideo's dominant position in the smart home market, where demand for connected devices is accelerating.

Free Cash Flow Recovery and DCF Justification

Resideo's free cash flow (FCF) has been volatile, with a notable drag in Q3 2025 due to a $1.59 billion one-time payment to Honeywell to terminate an indemnification agreement. Adjusted for this, cash flow from operations was a positive $19 million in Q3 2025. Analyst forecasts, however, paint a more optimistic picture. Free cash flow is projected to recover sharply, reaching $350 million by 2026, $394 million by 2027, and $598 million by 2035.

Using a two-stage discounted cash flow (DCF) model, the intrinsic value of REZI is estimated at $41.50 per share, compared to its current price of $36.90. This suggests a 11% undervaluation. The DCF incorporates a terminal growth rate of 3.3% and a cost of equity of 10%, with the present value of future cash flows over the next decade estimated at $2.8 billion and a terminal value of $8.9 billion. These assumptions are conservative given the company's improving gross margins and strategic focus on margin expansion in its Products and Solutions segment.

Contrarian Appeal in a High-Growth Sector

The smart home industry is poised for explosive growth, with the global market projected to expand at a 23.1% CAGR through 2032, reaching $633.2 billion. Resideo's product innovations, such as the ElitePRO and X8S premium smart thermostats, position it to capture a larger share of this growth. Despite macroeconomic headwinds like housing market slowdowns, the company's ADI segment has demonstrated resilience, with e-commerce and Exclusive Brands sales driving revenue growth.

Analysts project modest revenue growth of 2.9% for Resideo in 2025, but this understates the long-term potential. The company's 2024 results-despite a 45% drop in net income year-over-year-showed a 17% increase in adjusted EBITDA to $693 million and record operating cash flow of $444 million. These metrics highlight operational improvements that could translate into stronger FCF generation as the one-time Honeywell payment is fully accounted for.

Risks and Mitigants

Critics may point to Resideo's recent negative free cash flow in the last twelve months ($1.35 billion) as a red flag. However, this is largely attributable to the Honeywell settlement, which is a non-recurring item. Adjusted cash flow from operations in Q3 2025 was positive, and the company's focus on gross margin expansion (up to 41.0% in 2024 from 38.6% in 2023) suggests a path to sustainable cash flow. Additionally, Resideo's low P/S ratio provides a margin of safety, as the stock trades at a 41% discount to its 5-year average multiple.

Conclusion: A Contrarian Bet with Attractive Upside

Resideo Technologies is a textbook contrarian value play. Its current valuation discounts the company's strong industry positioning, improving operational efficiency, and the long-term growth of the smart home sector. With a DCF-derived intrinsic value of $41.50 and a P/S ratio far below peers, REZI offers compelling upside potential for investors willing to look beyond short-term volatility. As the smart home market matures and Resideo's free cash flow recovers, the stock could deliver significant returns for those who act now.