Automatic Data Processing (ADP) Shows Signs Of Being Water-Logged And Getting Wetter

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Automatic Data Processing ( ADP) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Automatic Data Processing as such a stock due to the following factors:

  • ADP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $131.8 million.
  • ADP has traded 76,206 shares today.
  • ADP traded in a range 420.7% of the normal price range with a price range of $6.01.
  • ADP traded below its daily resistance level (quality: 115 days, meaning that the stock is crossing a resistance level set by the last 115 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on ADP:

Automatic Data Processing, Inc., together with its subsidiaries, provides technology-based outsourcing solutions to employers and vehicle retailers and manufacturers worldwide. The stock currently has a dividend yield of 2.5%. ADP has a PE ratio of 27.0. Currently there are 5 analysts that rate Automatic Data Processing a buy, 2 analysts rate it a sell, and 13 rate it a hold.

The average volume for Automatic Data Processing has been 1.8 million shares per day over the past 30 days. Automatic Data Processing has a market cap of $37.2 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 0.85 and a short float of 1% with 2.72 days to cover. Shares are down 5.2% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Automatic Data Processing as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, growth in earnings per share, increase in net income and solid stock price performance. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 18.4%. Since the same quarter one year prior, revenues slightly increased by 7.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has significantly increased by 224.88% to $81.30 million when compared to the same quarter last year. In addition, AUTOMATIC DATA PROCESSING has also vastly surpassed the industry average cash flow growth rate of 24.56%.
  • AUTOMATIC DATA PROCESSING has improved earnings per share by 9.7% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. We anticipate these figures will begin to experience more growth in the coming year. During the past fiscal year, AUTOMATIC DATA PROCESSING's EPS of $2.80 remained unchanged from the prior years' EPS of $2.80. This year, the market expects an improvement in earnings ($3.17 versus $2.80).
  • The net income growth from the same quarter one year ago has exceeded that of the IT Services industry average, but is less than that of the S&P 500. The net income increased by 7.6% when compared to the same quarter one year prior, going from $305.30 million to $328.60 million.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 29.98% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.
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