Automatic Data Processing (Automatic Data Processing) Predictability Rank

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What is Automatic Data Processing Predictability Rank?

Warren Buffett said many times that the companies he likes are:

1. Simple businesses that he understands
2. that have predictable and proven earnings and
3. with economic moat
4. those can be bought at a reasonable price.

It is hard to quantify "simple businesses that he (Buffett) understands", so we will focus on the other three characteristics instead. In GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank, we will show that the businesses that have predictable and proven earnings are usually also simple businesses that an average person could understand.

GuruFocus conducted a back test study of Warren Buffett's strategy of "buying good companies at fair prices" for the years from 1998-2008.

Automatic Data Processing Predictability Rank Calculation

In our database there are 2403 stocks that have been traded from Jan. 2, 1998 to Aug. 31, 2008. We have the complete 10-year financial data and trading prices of these companies for this period. We rank the predictability of these companies based on the consistency of their revenue per share and EBITDA (earning before interest, tax, depreciation and amortization) per share over the past ten fiscal years, and study the correlation between the stock performances and the predictability of the business.

Our study may be subject to these biases and assumptions:

Dividend yields are not counted for investment returns
Effects of price changes due to spin-offs may not be fully adjusted
Study is subjected to survivorship bias due to de-listing, bankruptcy, LBO, M&A, etc.

The correlation between business predictability and investment returns of a company is showed below.

Correlation Between Business Predictability and Investment Returns

	Predictables	Non-Predictable	All stocks
Total Number of stocks	570	1833	2403
Total Lost Money	61	830	891
Total Lost More Than 50%	18	412	430
Total Lost More Than 90%	4	86	90
Average Gain	260.6%	100.0%	138.1%
Median Gain	150.0%	13.0%	39.0%
Maximum Gain	2852.0%	11483.0%	11483.0%
Maximum Loss	-100.0%	-100.0%	-100.0%
Annualized Average Gain	12.7%	6.7%	8.4%
Annualized Median Gain	8.9%	1.1%	3.1%

For the 570 predictable companies, we have seen strong correlation between the predictability of businesses and the stock performances over the past 10 years, regardless of the valuation of business at 1998. Accordingly, we have ranked the business predictability from 5-star to 1-star, as shown in this table.

Predictability Rank	5-Star	4.5-Star	4-Star	3.5-Star	3-Star	2.5-Star	2-Star	1-Star (non-predictable)	Average among all
% Out of All 2403 Stocks	3.3%	2.9%	3.7%	3.3%	3.3%	3.7%	3.3%	76.3%	100%
% that are in Loss (10y)	3%	10%	8%	9%	11%	18%	16%	45%	37%
Average Gain (10y)	364.6%	330.9%	278.0%	235.1%	243.5%	227.8%	154.8%	100.0%	138.1%
Median Gain (10y)	238.5%	193.5%	171.0%	159.0%	132.5%	113.5%	87.0%	13.0%	39.0%
Maximum Gainer	2228.0%	2547.0%	2452.0%	2852.0%	2432.0%	1892.0%	1807.0%	11483.0%	11483.0%
Maximum Loser	-82.0%	-53.0%	-67.0%	-100.0%	-83.0%	-100.0%	-78.0%	-100.0%	-100.0%
Annualized Average Gain	15.4%	14.6%	13.2%	12.0%	12.2%	11.7%	9.1%	6.7%	8.4%
Annualized Median Gain	12.1%	10.6%	9.8%	9.3%	8.2%	7.3%	6.0%	1.1%	3.1%

For detailed information about each predictability rank, please go to GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank

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Automatic Data Processing (Automatic Data Processing) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Industrials » Business Services » Automatic Data Processing Inc (NAS:ADP) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

ADAP:Mexico 1ADP:Italy ADP:Germany ADP:Germany ADP:Germany ADPR34:Brazil ADP:Austria ADP:Argentina

Address

One ADP Boulevard, Roseland, NJ, USA, 07068

Website

https://www.adp.com

ADP is a provider of payroll and human capital management solutions servicing the full scope of businesses from micro to global enterprises. ADP was established in 1949 and serves over 1 million clients primarily in the United States. ADP's employer services segment offers payroll, human capital management solutions, human resources outsourcing, insurance and retirement services. The smaller but faster-growing professional employer organization segment provides HR outsourcing solutions to small and midsize businesses through a co-employment model.

Executives

John Ayala	officer: Corp. VP	ONE ADP BOULEVARD, ROSELAND NJ 07068
Maria Black	officer: Corp. VP	ONE ADP BOULEVARD, ROSELAND NJ 07068
Brock Albinson	officer: Corp. VP	ONE ADP BOULEVARD, ROSELAND NJ 07068
David Kwon	officer: Corp VP	ONE ADP BOULEVARD, ROSELAD NJ 07068
Don Mcguire	officer: Corp VP	ONE ADP BOULEVARD, ROSELAND NJ 07068
Carlos A Rodriguez	officer: Corporate Vice President	10200 SUNSET DRIVE, MIAMI FL 33173
Michael A Bonarti	officer: Staff Vice President	ONE ADP BOULEVARD, ROSELAND NJ 07068
Christopher D'ambrosio	officer: Corp. VP	ONE ADP BOULEVARD, ROSELAND NJ 07068
Joseph Desilva	officer: Corp VP	ONE ADP BOULEVARD, ROSELAND NJ 07068
Paul Boland	officer: Corp. VP	ONE ADP BOULEVARD, ROSELAND NJ 07068
Donald Weinstein	officer: Corporate VP	ONE ADP BOULEVARD, ROSELAND NJ 07068
James T Sperduto	officer: Corp VP	ONE ADP BOULEVARD, ROSELAND NJ 07068
Laura G Brown	officer: Corp. VP	ONE ADP BOULEVARD, ROSELAND NJ 07068
Augusto J Blanchard	officer: Corp VP	ONE ADP BOULEVARD, ROSELAND NJ 07068
Alexander Quevedo	officer: Corp VP	ONE ADP BOULEVARD, ROSELAND NJ 07068