For long term investors, improvement in profitability and outperformance against the industry can be important characteristics in a stock. In this article, I will take a look at Automatic Data Processing, Inc.'s (NasdaqGS:ADP) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.
How Did ADP's Recent Performance Stack Up Against Its Past?
ADP's trailing twelve-month earnings (from 30 September 2019) of US$2.4b has jumped 20% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 12%, indicating the rate at which ADP is growing has accelerated. What's enabled this growth? Well, let’s take a look at whether it is only a result of industry tailwinds, or if Automatic Data Processing has experienced some company-specific growth.
In terms of returns from investment, Automatic Data Processing has invested its equity funds well leading to a 44% return on equity (ROE), above the sensible minimum of 20%. However, its return on assets (ROA) of 6.4% is below the US IT industry of 6.5%, indicating Automatic Data Processing's are utilized less efficiently. Though, its return on capital (ROC), which also accounts for Automatic Data Processing’s debt level, has increased over the past 3 years from 31% to 37%.
What does this mean?
Though Automatic Data Processing's past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Automatic Data Processing to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ADP’s future growth? Take a look at our free research report of analyst consensus for ADP’s outlook.
- Financial Health: Are ADP’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 September 2019. This may not be consistent with full year annual report figures.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.