ADT Inc (ADT, Financial) experienced a day's loss of 7.62%, and a 3-month gain of 0.56%. With a per-share loss of $0.05, the question arises: Is the stock modestly undervalued? This article aims to delve into the valuation analysis of ADT, providing a comprehensive exploration of its intrinsic worth and future prospects.
Company Introduction
ADT Inc is a leading provider of monitored security, interactive home and business automation, and related monitoring services in the United States and Canada. Offering a comprehensive set of solutions including burglary, video, access control, fire and smoke alarm, and medical alert to residential, commercial, and multi-site customers, ADT has established a strong presence in the security industry. With a stock price of $5.94 and a fair value (GF Value) of $8.11, ADT appears to be modestly undervalued. This valuation paves the way for a deeper analysis of the company's intrinsic value.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on the summary page provides an overview of the fair value at which the stock should ideally be traded.
ADT's stock appears to be modestly undervalued based on the GF Value calculation. At its current price of $5.94 per share, ADT has a market cap of $5.50 billion. This suggests that the long-term return of its stock is likely to be higher than its business growth, given its relative undervaluation.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Assessing the financial strength of a company is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage offer valuable insights into a company's financial strength. ADT's cash-to-debt ratio of 0.02 is worse than 95.97% of companies in the Business Services industry, indicating poor financial strength.
Profitability and Growth
Investing in profitable companies usually carries less risk. ADT has been profitable for 2 years over the past 10 years. With revenues of $6.50 billion and a per-share loss of $0.05 in the past 12 months, its operating margin of 15.86% is better than 80% of companies in the Business Services industry. However, ADT's 3-year average revenue growth rate is worse than 66.39% of companies in the Business Services industry, indicating a need for improvement in growth.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) can further clarify its profitability. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, ADT's ROIC is 1.11, and its cost of capital is 5.49.
Conclusion
In conclusion, the stock of ADT (ADT, Financial) appears to be modestly undervalued. The company's financial condition is poor, and its profitability is poor. Its growth ranks worse than 80.85% of 846 companies in the Business Services industry. To learn more about ADT stock, you can check out its 30-Year Financials here.
To find out high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
