A solid third-quarter earnings report, stable guidance, an excellent return on invested capital, and superb profit margins provide a floor under the sell-off. Can AI deliver a revenue boost?
Long Trade Idea
Enter your long position between 244.65 (the intra-day low from a cup-and-handle formation that sparked the previous rally) and 253.56 (yesterday’s intra-day high).
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Market Index Analysis
- Automated Data Processing (ADP) is a member of the NASDAQ 100 and the S&P 500
- Both indices have entered a bearish price channel and are moving away from all-time highs with rising bearish volumes
- The Bull Bear Power Indicator of the NASDAQ 100 is bearish with a descending trendline
Market Sentiment Analysis
Equity markets extended the AI-led sell-off from last week, with futures pointing to more downside ahead of tomorrow’s NVIDIA earnings after the bell. Markets also slashed expectations for a December interest rate cut from above 90% to 40%, further applying downside pressure on tech names, as they often rely on debt to finance business expansions. Adding to the sour mood is the bear market in Bitcoin and the impact on investor confidence, especially in the retail sector. While it remains premature to call the AI bubble bursting, red flags continue to amass.
Automated Data Processing Fundamental Analysis
Automated Data Processing is a human resources and management firm with an expanding global footprint. It is best known for its ADP employment report in the US, which precedes the official NFP report by 2 days.
So, why am I bullish on ADP despite its post-earnings sell-off?
Third-quarter revenues and earnings per share came in at $5.18 billion and $2.49, respectively, beating estimates of $5.13 billion and $2.44. The fourth-quarter outlook clocked in at the mid-point of its range, and I am bullish on its latest AI features. While the labor market remains shaky, I like ADP for its strategic position to invest in smaller, global human resources firms. The sell-off brought valuations down, the free cash flow is excellent, and resilient demand trends solidify long-term bullish factors.
Automated Data Processing Fundamental Analysis Snapshot
Metric | Value | Verdict |
P/E Ratio | 24.74 | Bullish |
P/B Ratio | 16.06 | Bearish |
PEG Ratio | 3.06 | Bearish |
Current Ratio | 1.05 | Bearish |
ROIC-WACC Ratio | Positive | Bullish |
The price-to-earnings (P/E) ratio of 24.74 indicates ADP is an inexpensive stock. By comparison, the P/E ratio for the NASDAQ 100 is 36.36.
The average analyst price target for ADP is 293.23, which suggests reasonable upside potential with manageable downside risks.
Automated Data Processing Technical Analysis
Today’s ADP Signal
- The ADP D1 chart shows price action inside its horizontal support zone
- It also shows price action between its descending 0.0% and 38.2% Fibonacci Retracement Fan levels
- The Bull Bear Power Indicator is bearish with a positive divergence
- The average bullish trading volumes are higher than the average bearish trading volumes since forming its latest horizontal support zone
- ADP corrected faster than the S&P 500, but bullish catalysts accumulate
My Call
I am taking a long position in ADP between 244.65 and 253.56. ADP processes one in six US paychecks. Its cloud-based solutions form the backbone of many companies, and the implementation of AI should drive future efficiencies. Core operational metrics are also excellent.
- ADP Entry Level: Between 244.65 and 253.56
- ADP Take Profit: Between 287.40 and 293.23
- ADP Stop Loss: Between 224.33 and 231.27
- Risk/Reward Ratio: 2.10
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