ADP Stock Down 5%, Should You Buy The Dip?

by Trefis Team
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The shares of ADP (NASDAQ: ADP) fell by 5% after releasing third-quarter earnings results despite an upward revision in revenue and earnings guidance. The company offers cloud-based human capital management (HCM) solutions including payroll processing, talent management, and employee benefits functions to enterprises. Per a recent release, ADP’s fiscal 2021 revenues and earnings are likely to expand by 2% and 1%, respectively. Interestingly, the Employer Services segment observed new business bookings despite a decline in the U.S. pays per control metric, which indicates the employee base of ADP’s clients.

According to the Trefis Machine Learning Engine, which identifies trends in the company’s historical stock price data, returns for Automatic Data Processing stock average 3.7% in the next one-month (twenty-one trading days) period after experiencing a -4% move in a week (five trading days). Thus, the stock is likely to outperform the S&P500 over the next month (twenty-one trading days).

But how would these numbers change if you are interested in holding ADP stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Automatic Data Processing stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

MACHINE LEARNING ENGINE – try it yourself:

IF ADP stock moved by -5% over five trading days, THEN over the next twenty-one trading days, ADP stock moves an average of 3.8 percent, which implies an excess return of  0.9 percent compared to the S&P500.

More importantly, there is 82% probability of a positive return over the next twenty-one trading days and 67% probability of a positive excess return.

Some Fun Scenarios, FAQs & Making Sense of Automatic Data Processing Stock Movements:

Question 1: Is the average return for Automatic Data Processing stock higher after a drop?


Consider two situations,

Case 1: Automatic Data Processing stock drops by -5% or more in a week

Case 2: Automatic Data Processing stock rises by 5% or more in a week

Is the average return for Automatic Data Processing stock higher over the subsequent month after Case 1 or Case 2?

ADP stock fares better after Case 1, with an average return of 3.8% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 2.5% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Automatic Data Processing stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?


If you buy and hold Automatic Data Processing stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For ADP stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Automatic Data Processing after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise if you wait for a while?


The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although ADP stock appears to be an exception to this general observation.

ADP’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Automatic Data Processing stock by changing the inputs in the charts above.

While ADP is a good pick after its recent dip, is ADP’s peer Paycom Software a better buy. Check out Paycom Software Stock Comparison With Peers to see how Paycom compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

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