Was Automatic Data Processing Inc’s (NASDAQ:ADP) Earnings Growth Better Than Industry?
When Automatic Data Processing Inc (NASDAQ:ADP) announced its most recent earnings (30 September 2017), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Automatic Data Processing performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see ADP has performed. View our latest analysis for Automatic Data Processing
How Well Did ADP Perform?
I use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This blend allows me to examine different stocks on a more comparable basis, using new information. For Automatic Data Processing, the most recent earnings is $1,766.2M, which, in comparison to last year’s level, has risen by 15.85%. Given that these figures are fairly short-term, I have determined an annualized five-year figure for ADP’s earnings, which stands at $1,390.1M. This shows that, generally, Automatic Data Processing has been able to consistently raise its earnings over the last few years as well.
How has it been able to do this? Let’s see if it is merely owing to an industry uplift, or if Automatic Data Processing has experienced some company-specific growth. Over the last few years, Automatic Data Processing expanded its bottom line faster than revenue by effectively controlling its costs. This has caused a margin expansion and profitability over time. Inspecting growth from a sector-level, the US it industry has been growing, albeit, at a unexciting single-digit rate of 2.96% over the previous twelve months, and 9.97% over the past five. This means whatever near-term headwind the industry is experiencing, Automatic Data Processing is relatively better-cushioned than its peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that have performed well in the past, such as Automatic Data Processing gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Automatic Data Processing to get a more holistic view of the stock by looking at:
1. 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.
2. Financial Health: Is 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.
3. 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 last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
