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Trade-Ideas: ADT (ADT) Is Today's "Storm The Castle" Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified ADT ( ADT) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified ADT as such a stock due to the following factors:

  • ADT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $50.8 million.
  • ADT has traded 8.2 million shares today.
  • ADT is trading at 11.96 times the normal volume for the stock at this time of day.
  • ADT crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on ADT:

The ADT Corporation provides electronic security, interactive home and business automation, and related monitoring services under the ADT, ADT Pulse, and Companion Service brands to residential and small business customers in the United States and Canada. The stock currently has a dividend yield of 2.4%. ADT has a PE ratio of 19.4. Currently there are 2 analysts that rate ADT a buy, no analysts rate it a sell, and 5 rate it a hold.

The average volume for ADT has been 2.0 million shares per day over the past 30 days. ADT has a market cap of $5.8 billion and is part of the services sector and diversified services industry. Shares are down 18.5% year-to-date as of the close of trading on Tuesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates ADT as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally high debt management risk and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Commercial Services & Supplies industry. The net income has significantly decreased by 41.1% when compared to the same quarter one year ago, falling from $107.00 million to $63.00 million.
  • Currently the debt-to-equity ratio of 1.51 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. To add to this, ADT has a quick ratio of 0.57, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • The share price of ADT CORP has not done very well: it is down 20.46% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • ADT CORP's earnings per share declined by 27.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ADT CORP increased its bottom line by earning $1.88 versus $0.40 in the prior year. This year, the market expects an improvement in earnings ($1.89 versus $1.88).
  • When compared to other companies in the Commercial Services & Supplies industry and the overall market, ADT CORP's return on equity is below that of both the industry average and the S&P 500.

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