Here’s Why We Think Automatic Data Processing (NASDAQ:ADP) Is Well Worth Watching

Investors are often guided by the idea of discovering ‘the next big thing’, even if that means buying ‘story stocks’ without any revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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 Automatic Data Processing (NASDAQ:ADP). While profit isn’t the sole metric that should be considered when investing, it’s worth recognising businesses that can consistently produce it.

Check out our latest analysis for Automatic Data Processing

Automatic Data Processing’s Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. We can see that in the last three years Automatic Data Processing grew its EPS by 15% per year. That’s a good rate of growth, if it can be sustained.

One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Our analysis has highlighted that Automatic Data Processing’s revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Automatic Data Processing maintained stable EBIT margins over the last year, all while growing revenue 6.6% to US$19b. That’s a real positive.

The chart below shows how the company’s bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

NasdaqGS:ADP Earnings and Revenue History October 23rd 2024

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Automatic Data Processing’s forecast profits?

Are Automatic Data Processing Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$119b company like Automatic Data Processing. But we are reassured by the fact they have invested in the company. Given insiders own a significant chunk of shares, currently valued at US$78m, they have plenty of motivation to push the business to succeed. This would indicate that the goals of shareholders and management are one and the same.

Does Automatic Data Processing Deserve A Spot On Your Watchlist?

One important encouraging feature of Automatic Data Processing is that it is growing profits. To add an extra spark to the fire, significant insider ownership in the company is another highlight. The combination definitely favoured by investors so consider keeping the company on a watchlist. If you think Automatic Data Processing might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.

Although Automatic Data Processing certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of companies that not only boast of strong growth but have strong insider backing.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.