ADT (ADT) Shows Signs Of Being Water-Logged And Getting Wetter

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 "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) 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 $67.7 million.
  • ADT has traded 1.3 million shares today.
  • ADT traded in a range 234.1% of the normal price range with a price range of $2.02.
  • ADT traded below its daily resistance level (quality: 13 days, meaning that the stock is crossing a resistance level set by the last 13 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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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 2.2%. ADT has a PE ratio of 21.6. 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 1.7 million shares per day over the past 30 days. ADT has a market cap of $6.2 billion and is part of the services sector and diversified services industry. The stock has a beta of 0.91 and a short float of 23.5% with 18.35 days to cover. Shares are down 9.1% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates ADT as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.3%. Since the same quarter one year prior, revenues slightly increased by 1.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for ADT CORP is currently very high, coming in at 88.69%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 9.65% trails the industry average.
  • ADT CORP's earnings per share declined by 9.6% 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 ($1.96 versus $1.88).
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. 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.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, ADT has underperformed the S&P 500 Index, declining 13.12% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.

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

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