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The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like ADT (NYSE:ADT). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
ADT's Improving Profits
In the last three years ADT's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. ADT's EPS shot up from US$0.49 to US$0.71; a result that's bound to keep shareholders happy. That's a impressive gain of 44%.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While we note ADT achieved similar EBIT margins to last year, revenue grew by a solid 5.3% to US$4.9b. That's encouraging news for the company!
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
See our latest analysis for ADT
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for ADT's future EPS 100% free.
Are ADT Insiders Aligned With All Shareholders?
Since ADT has a market capitalisation of US$7.1b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$109m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!
Is ADT Worth Keeping An Eye On?
If you believe that share price follows earnings per share you should definitely be delving further into ADT's strong EPS growth. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. You should always think about risks though. Case in point, we've spotted 1 warning sign for ADT you should be aware of.