AUTOMATIC DATA PROCESSING (NASDAQ:ADP) – A Quality Stock with Strong Fundamentals

AUTOMATIC DATA PROCESSING (NASDAQ:ADP) was identified through our Caviar Cruise screen, which focuses on high-quality businesses with durable competitive advantages. ADP stands out for its profitability, financial health, and consistent growth, making it a candidate for long-term investors.

Why ADP Fits the Quality Investing Criteria

• Strong Profitability: ADP has an impressive Return on Invested Capital (ROIC) of 102.41%, well above the 15% threshold for quality stocks. This indicates efficient use of capital.
• Healthy Growth: Revenue has grown at a 5-year CAGR of 6.06%, while EBIT growth has averaged 10.53% annually, showing improving profitability.
• Low Debt Burden: With a Debt-to-Free Cash Flow ratio of 0.94, ADP can comfortably manage its obligations, needing less than a year of FCF to repay debt.
• High Profit Quality: Over the past five years, 97.19% of net income has been converted into free cash flow, indicating reliable earnings.

Fundamental Analysis Summary

ADP’s financial health is solid, with high margins (26.48% operating margin) and a strong dividend history, growing payouts by 12.44% annually. While its valuation appears elevated (P/E of 33.25), this is partly justified by its profitability and stability.

For more quality stock ideas, explore our Caviar Cruise screener.

Disclaimer

This is not investing advice. Always conduct your own research before making investment decisions.