ADT has been treading water for the past six months, recording a small loss of 2.3% while holding steady at $8.24. The stock also fell short of the S&P 500’s 10% gain during that period.
Is there a buying opportunity in ADT, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think ADT Will Underperform?
We don't have much confidence in ADT. Here are three reasons we avoid ADT and a stock we'd rather own.
1. Decline in Customers Points to Weak Demand
Revenue growth can be broken down into changes in price and volume (for companies like ADT, our preferred volume metric is customers). While both are important, the latter is the most critical to analyze because prices have a ceiling.
ADT’s customers came in at 6.3 million in the latest quarter, and over the last two years, averaged 1.7% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests ADT might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability. 
2. Cash Flow Margin Set to Decline
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Over the next year, analysts predict ADT’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 16.9% for the last 12 months will decrease to 16.8%.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
ADT historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.1%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.
Final Judgment
We see the value of companies helping consumers, but in the case of ADT, we’re out. With its shares trailing the market in recent months, the stock trades at 9× forward P/E (or $8.24 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d recommend looking at one of our all-time favorite software stocks.
Stocks We Would Buy Instead of ADT
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
