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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. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Automatic Data Processing (NASDAQ:ADP). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
Check out our latest analysis for Automatic Data Processing
How Quickly Is Automatic Data Processing Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Automatic Data Processing grew its EPS by 14% per year. That's a good rate of growth, if it can be sustained.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that Automatic Data Processing's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. While we note Automatic Data Processing achieved similar EBIT margins to last year, revenue grew by a solid 7.1% to US$20b. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
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$127b company like Automatic Data Processing. But we are reassured by the fact they have invested in the company. Notably, they have an enviable stake in the company, worth US$134m. This comes in at 0.1% of shares in the company, which is a fair amount of a business of this size. This should still be a great incentive for management to maximise shareholder value.