Automatic Data Processing Stock at Support Zone – Bargain or Trap?
Automatic Data Processing (ADP) stock should be on your watchlist. Here is why – it is currently trading in the support zone ($241.45 – $266.87), levels from which it has bounced meaningfully before. In the last 10 years, Automatic Data Processing stock received buying interest at this level 3 times and subsequently went on to generate 11.0% in average peak returns.
| Peak Return | Days to Peak Return | |
|---|---|---|
| 3/27/2024 | 0.7% | 13 |
| 5/13/2024 | 10.1% | 105 |
| 8/26/2024 | 22.3% | 284 |
But is the price action enough alone? It certainly helps if the fundamentals check out. For ADP Read Buy or Sell ADP Stock to see how convincing this buy opportunity might be.
Is holding ADP stock risky? Of course it is. High Quality Portfolio mitigates that risk.
Here are some quick data points for Automatic Data Processing that should help decision:
- Automatic Data Processing Stock Capital Return Hits $28 Bil
- Ten-Year Tally: Automatic Data Processing Stock Delivers $28 Bil Gain
- Paycom Software vs Automatic Data Processing: Which Is the Stronger Buy Today?
- ADP Near Crucial Support Level – Buy Signal Ahead
- What To Expect From ADP’s Q1 Results?
- What To Expect From ADP’s Q4 Earnings?
- Revenue Growth: 7.1% LTM and 7.4% last 3 year average.
- Cash Generation: Nearly 20.1% free cash flow margin and 26.2% operating margin LTM.
- Recent Revenue Shocks: The minimum annual revenue growth in last 3 years for ADP was 6.6%.
- Valuation: ADP stock trades at a PE multiple of 24.9
For quick background, Automatic Data Processing provides cloud-based human capital management and HR outsourcing solutions to small and mid-sized businesses through Employer Services and Professional Employer Organization segments.
| ADP | S&P Median | |
|---|---|---|
| Sector | Industrials | – |
| Industry | Human Resource & Employment Services | – |
| PE Ratio | 24.9 | 23.6 |
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| LTM* Revenue Growth | 7.1% | 6.0% |
| 3Y Average Annual Revenue Growth | 7.4% | 5.5% |
| Min Annual Revenue Growth Last 3Y | 6.6% | 0.0% |
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| LTM* Operating Margin | 26.2% | 18.8% |
| 3Y Average Operating Margin | 25.8% | 18.2% |
| LTM* Free Cash Flow Margin | 20.1% | 13.6% |
*LTM: Last Twelve Months
What Is Stock-Specific Risk If The Market Crashes?
ADP isn’t immune to big drops. It fell about 36% in both the Dot-Com Bubble and the Global Financial Crisis. The Covid selloff hit even harder, with a nearly 40% plunge. The 2018 correction and Inflation Shock had smaller dips, around 19% and 22%, respectively. Good fundamentals matter, but history shows ADP can still take a sizable hit when markets turn south.
But the risk is not limited to major market crashes. Stocks fall even when markets are in good shape – think events like earnings, business updates, outlook changes. Read ADP Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.