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Did Changing Sentiment Drive ADT’s (NYSE:ADT) Share Price Down By 29%?

Simply Wall St

The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in ADT Inc. (NYSE:ADT) have tasted that bitter downside in the last year, as the share price dropped 29%. That’s disappointing when you consider the market returned 3.0%. ADT may have better days ahead, of course; we’ve only looked at a one year period. Unfortunately the share price momentum is still quite negative, with prices down 22% in thirty days. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.

View our latest analysis for ADT

Because ADT is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

ADT grew its revenue by 6.2% over the last year. That’s not a very high growth rate considering it doesn’t make profits. Given this fairly low revenue growth (and lack of profits), it’s not particularly surprising to see the stock down 29% in a year. In a hot market it’s easy to forget growth is the life-blood of a loss making company. But if you buy a loss making company then you could become a loss making investor.

The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).

NYSE:ADT Income Statement, March 15th 2019

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling ADT stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

While ADT shareholders are down 28% for the year (even including dividends), the market itself is up 3.0%. While the aim is to do better than that, it’s worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 9.4% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we’d remain pretty wary until we see some strong business performance. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.