It’s easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Unfortunately the ADT Inc. (NYSE:ADT) share price slid 13% over twelve months. That’s disappointing when you consider the market returned 22%. ADT hasn’t been listed for long, so although we’re wary of recent listings that perform poorly, it may still prove itself with time. It’s down 20% in about a month.
Check out our latest analysis for ADT
ADT wasn’t profitable in the last twelve months, it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn’t make profits, we’d generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
ADT grew its revenue by 11% over the last year. While that may seem decent it isn’t great considering the company is still making a loss. Given this lacklustre revenue growth, the share price drop of 13% seems pretty appropriate. It’s important not to lose sight of the fact that profitless companies must grow. So remember, if you buy a profitless company then you risk being a profitless investor.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for ADT the TSR over the last year was -3.8%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While ADT shareholders are down 3.8% for the year (even including dividends) , the market itself is up 22%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Notably, the loss over the last year isn’t as bad as the 20% drop in the last three months. So it seems like some holders have been dumping the stock of late – and that’s not bullish. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Be aware that ADT is showing 4 warning signs in our investment analysis , you should know about…
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.