Yahoo Finance Automatic Data Processing's (NASDAQ:ADP) five-year total shareholder returns outpace the underlying earnings growth
When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. Long term Automatic Data Processing, Inc. (NASDAQ:ADP) shareholders would be well aware of this, since the stock is up 111% in five years. Unfortunately, though, the stock has dropped 6.6% over a week. But note that the broader market is down 2.2% since last week, and this may have impacted Automatic Data Processing's share price.
While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
View our latest analysis for Automatic Data Processing
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Automatic Data Processing achieved compound earnings per share (EPS) growth of 13% per year. This EPS growth is lower than the 16% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Automatic Data Processing has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Automatic Data Processing will grow revenue in the future.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Automatic Data Processing, it has a TSR of 134% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's good to see that Automatic Data Processing has rewarded shareholders with a total shareholder return of 9.8% in the last twelve months. Of course, that includes the dividend. However, that falls short of the 19% TSR per annum it has made for shareholders, each year, over five years. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. It's always interesting to track share price performance over the longer term. But to understand Automatic Data Processing better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Automatic Data Processing .
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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