ADT (ADT)

Security technology and services company ADT (NYSE:ADT) met Wall Streets revenue expectations in Q3 CY2025, with sales up 4.4% year on year to $1.30 billion. On the other hand, the company’s full-year revenue guidance of $5.13 billion at the midpoint came in 0.5% below analysts’ estimates. Its non-GAAP profit of $0.23 per share was 6.9% above analysts’ consensus estimates.

Company Overview

Founded in 1874 and headquartered in Boca Raton, Florida, ADT (NYSE:ADT) is a provider of security, automation, and smart home solutions, offering comprehensive services for home and business protection.

Some consumer discretionary companies don’t fall neatly into a category because their products or services are unique. Although their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has existed for a while. Technology can be a double-edged sword, though, as it may lower the barriers to entry for new competitors and allow them to do serve customers better.

ADT's primary competitors include Ring (owned by Amazon NASDAQ:AMZN), Honeywell (NYSE:HON), Nest Secure (owned by Google NASDAQ:GOOGL), Xfinity Home Security (owned by Comcast NASDAQ:CMCSA), and private companies Vivint Smart Home, SimpliSafe, Brinks Home Security, and Frontpoint.

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, ADT struggled to consistently increase demand as its $5.11 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and suggests it’s a lower quality business.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. ADT’s annualized revenue growth of 1.7% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, ADT grew its revenue by 4.4% year on year, and its $1.30 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months. Although this projection implies its newer products and services will fuel better top-line performance, it is still below the sector average.

ADT’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 25.1% over the last two years. This profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.

In Q3, ADT generated an operating margin profit margin of 24.3%, down 2 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

ADT’s EPS grew at an astounding 67.5% compounded annual growth rate over the last five years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.

In Q3, ADT reported adjusted EPS of $0.23, up from $0.20 in the same quarter last year. This print beat analysts’ estimates by 6.9%. Over the next 12 months, Wall Street expects ADT’s full-year EPS of $0.87 to grow 7.9%.

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.

ADT has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 16.7% over the last two years, quite impressive for a consumer discretionary business.

ADT’s free cash flow clocked in at $437 million in Q3, equivalent to a 33.7% margin. This result was good as its margin was 22.7 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

Over the next year, analysts predict ADT’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 21.7% for the last 12 months will decrease to 17.9%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? 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 6.3%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. ADT’s ROIC has increased significantly over the last few years. This is a good sign, and we hope the company can continue improving.

ADT reported $171 million of cash and $7.81 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.66 billion of EBITDA over the last 12 months, we view ADT’s 2.9× net-debt-to-EBITDA ratio as safe. We also see its $457.6 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see ADT beat analysts’ EPS expectations this quarter. On the other hand, its full-year revenue guidance slightly missed. Overall, this quarter could have been better. The stock traded down 3.2% to $8.49 immediately after reporting.

Updated: December 3, 2025 at 10:14 PM EST

Before deciding whether to buy ADT or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

We see the value of companies helping consumers, but in the case of ADT, we’re out. To kick things off, its revenue growth was weak over the last five years. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its number of customers has disappointed. On top of that, its Forecasted free cash flow margin suggests the company will ramp up its investments next year.

ADT’s P/E ratio based on the next 12 months is 8.8x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $9.58 on the company (compared to the current share price of $8.15).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.