Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is ADP Making Money?

ADP Inc. (NASDAQ: ADP); the company known as Automatic Data Processing, is one of the most interesting plays in payment because of the nature of its business. ADP processes payrolls for over 500,000 organizations and 24 million workers in the United States.

That makes ADP well poised to cash in on the growth of the American economy. It also makes ADP an ideal platform for testing next-generation payment and data-processing technologies. For example, SpringRole which is trying to develop a more reliable resume verification process based on the blockchain is working with ADP.

There are many other applications that might be tested and deployed through ADP’s platform. An obvious solution would be a credit store keyed to a person’s actual income. Bloom (BLT) is developing such a solution for the Ethereum blockchain ecosystem. Other solutions would be lending, bank account, accounting programs, and credit cards.

ADP has a Bright Future on the Blockchain

A long-term product would be an App similar to Apple Pay or Google Pay that allows a person to access his or her salary directly from a phone. That way a person can be paid immediately without a bank account and be able to access his or her funds instantly without check cashing.

Other areas ADP can move into are payment and bookkeeping solutions for freelancers and gig economy workers. An obvious solution is a platform like UpWork which can serve both freelancers and full time employees. If the solution can handle hiring, background checks, and job search at the same it would generate a lot more income for ADP.

Several companies including SpringRole, Bloom, and WorkCoin are trying to develop such a system for the blockchain. This makes ADP an interesting dark horse investment for the blockchain because it operates a system that can bring the blockchain to millions.

Is ADP Making Money?

Okay so ADP is an interesting company with a bright future but is it making money? Yes it is but the ADP stock is definitely overvalued.

ADP reported revenues of $3.693 billion for 1st Quarter 2018, which did not justify the $135 share price reported on 7 June 2018. ADP had a gross profit of $1.615 billion, an operating income of $860.5 million and a net income of $643.10 million on March 31, 2018. None of those figures justified the stock price, even though they show ADP is making money.

ADP did have a nice free cash flow of $1.0302 billion and a good operating cash flow of $1.1349 billion on 31 March 2018. That is a good sign for a financial services company, one invests in financial services stocks because those firms should have lots of cash.

ADP did have a lot of cash in the form of $2.293 billion in cash and equivalents on 31 March 2018. It also accumulated assets of $44.065 billion and had a low of amount of debt at $2.002 billion on the same day. All of this makes ADP a pretty good infrastructure company, but is it a value investment?

Is ADP a Value Investment?

ADP has some of the attributes of a value investment because it is an infrastructure company that provides a necessary service. ADP provides a necessary service companies need that most people neither see nor understand.

It is also an unsexy company with little attraction to the tech crowd or speculators. Few people find payroll interesting, although almost everybody has a strong interest in it. Indeed the only time, ADP attracts media attention is when it puts out jobs numbers figures.

Those figures provide endless talking points for lazy journalists and unimaginative pundits but they say little about the company or its services. The sorry truth is that ADP is not a value investment because it is overpriced.

The $135 a share ADP was trading at on 7 June 2018 was simply ridiculous. There is nothing in the financials that justifies that figure. ADP is a good company but its stock is way overpriced.

The only thing I like at ADP is the Dividend which is high. ADP is scheduled to pay a dividend of 69¢ on 1 July 2018. That is up from 63¢ on 1 April 2018 and 57¢ on 1 July 2017. The only reason to buy ADP is for the dividend.

My advice on ADP is to wait until the stock price falls, the share price is simply too high. Like a lot of stocks in today’s market, ADP is a good company that is simply too expensive.



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