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A Secure ADT Is Getting Ready to Leave the Doghouse

NEW YORK (TheStreet) --ADT (ADT) is the biggest provider of electronic security, interactive home and business automation, and related monitoring services in North America. Around since 1874, it has a reputation to either protect or to lose.

That reputation has been under siege, not from its six million residential and small business customers but from shareholders who've been unhappy with both the company's management and the stock's performance. Shares were trading early Tuesday at $34.39, down 0.8% from the previous session and 15% for the year to date.

How dissatisfied are shareholders? One complaint, filed in the Southern District of Florida, is on behalf of all persons who purchased ADT common stock between Nov. 27, 2012, and Jan. 29, 2014. The complaint alleges the company and its executives "violated federal securities laws with respect to its disclosures concerning its business, operations, and prospects."

This type of shareholder class action is not uncommon, especially when a company overpromises and underdelivers. Supposedly when management announced its first-quarter 2014 quarterly results on Jan. 30 the numbers were much lower than investors had been guided to expect.

After the disappointing news shares of ADT plunged by $6.41, or over 16%, to close at $31.40 that same day. Since then the stock stayed in a funk until May when a rebound began  -- as illustrated in the one-year chart below.

ADT Chart
ADT
data by YCharts

Why the rebound? By May ADT had become one of the 10 most-shorted stocks. As the bargain hunters started buying, the shorts had to cover by buying shares, and that turned out to be the biggest upside catalyst for the stock.

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