ADT Inc (ADT, Financial), a leading provider of monitored security and related services in the United States and Canada, experienced a daily gain of 4.25%. However, over the last three months, the stock registered a loss of -4.13%, with a Loss Per Share of $0.05. This scenario prompts an intriguing question: is ADT (ADT) modestly undervalued? To answer this, we delve into an in-depth valuation analysis of ADT Inc. We invite you to join us as we explore the financial dynamics of this company.
Company Overview
ADT Inc (ADT, Financial) offers a comprehensive set of burglary, video, access control, fire and smoke alarm, and medical alert solutions to residential, commercial, and multi-site customers. The company operates through three segments: Consumer and Small Business (CSB), Commercial, and Solar, with the Commercial segment generating the maximum revenue.
ADT's current stock price stands at $6.13, with a market cap of $5.60 billion. When compared to its GF Value of $8.11, it appears that the stock might be modestly undervalued. Here's a closer look at ADT's income breakdown:
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on three key factors: historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates.
The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, the stock is likely overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given ADT's current price of $6.13 per share and its market cap of $5.60 billion, it appears that the stock is modestly undervalued. As a result, the long-term return of its stock is likely to be higher than its business growth.
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Assessing ADT's Financial Strength
Investing in companies with poor financial strength can pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before purchasing shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. ADT has a cash-to-debt ratio of 0.02, ranking worse than 95.61% of 1049 companies in the Business Services industry. This indicates that the overall financial strength of ADT is poor.
Here's a look at ADT's debt and cash over the past years:
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is often less risky. ADT has been profitable 2 times over the past 10 years. Over the past twelve months, the company had a revenue of $6.50 billion and a Loss Per Share of $0.05. Its operating margin is 15.86%, ranking better than 79.77% of 1043 companies in the Business Services industry. However, the overall profitability of ADT is ranked 4 out of 10, indicating poor profitability.
Growth is a crucial factor in the valuation of a company. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of ADT is -1.3%, which ranks worse than 65.92% of 983 companies in the Business Services industry. The 3-year average EBITDA growth is -7.5%, ranking worse than 80.56% of 854 companies in the Business Services industry.
ROIC vs WACC
Evaluating a company's profitability can also be done by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, ADT's ROIC was 1.11 while its WACC came in at 5.29.
Here's the historical ROIC vs WACC comparison of ADT:
Conclusion
In conclusion, ADT (ADT, Financial) appears to be modestly undervalued. However, the company's financial condition is poor, and its profitability is subpar. Its growth ranks worse than 80.56% of 854 companies in the Business Services industry. To learn more about ADT stock, you can check out its 30-Year Financials here.
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