AUTOMATIC DATA PROCESSING (NASDAQ:ADP) – A Quality Stock Worth Considering

AUTOMATIC DATA PROCESSING (NASDAQ:ADP) was identified by our Caviar Cruise screen as a potential candidate for quality investors. The company, a leader in cloud-based human capital management solutions, demonstrates strong financial metrics that align with the principles of quality investing.

Key Strengths

• High Return on Invested Capital (ROIC): ADP’s ROIC (excluding cash and goodwill) stands at 102.41%, far exceeding the 15% threshold for quality stocks. This indicates efficient use of capital to generate profits.
• Strong Profitability: The company has an EBIT growth rate of 10.53% over the past five years, outpacing its revenue growth of 6.06%, which suggests improving operational efficiency.
• Healthy Cash Flow Management: With a Debt-to-Free Cash Flow ratio of 0.94, ADP could pay off its debt in less than a year using current cash flows.
• Consistent Revenue Growth: Revenue has grown at a steady 6.06% CAGR over five years, supported by global demand for payroll and HR solutions.
• High Profit Quality: ADP converts 97.19% of net income into free cash flow, reflecting strong earnings reliability.

Fundamental Analysis Summary

ADP scores well on profitability, with high margins and returns on capital. Its financial health is solid, though liquidity metrics are slightly weaker than industry peers. Valuation appears stretched, with a P/E ratio of 32.13, but this may be justified by its stable growth and dividend track record. Analysts expect continued earnings growth of 8.66% annually.

Our Caviar Cruise screener lists more quality stocks updated daily. For a deeper look, review the full ADP fundamental report.

Disclaimer

This is not investing advice. The observations here are based on current data, but investors should conduct their own research before making decisions.