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Strategies & Market Trends : Disciplined Investing, especially the NAIC way -- Ignore unavailable to you. Want to Upgrade?

To: - with a K who wrote (393)	3/15/2003 11:21:45 PM
From: The Philosopher	Read Replies (1) \| Respond to of 469

We looked at both ADP and PAYX a while back, decided to hold off on either, though I prefer PAYX because it has newer technology and is focussed on the smaller business which is tending not to have the huge layoffs that ADP's clients tend to have. I noticed the warning (second warning), which didn't surprise me because with the extended layoffs continuing, ADP will of course get hurt as there are fewer people on payrolls. But I'm more concerned about their announcement of changes in their activities. Will they be the same basic company in three years? Can you reliably predict future growth from past growth if they have exited some lines and added others? Hard to predict. Theoretically they would only be doing this if they thought it would help their bottom line. But can they be sure? We sold Watson when it made the business change, not because we didn't believe they could do it, but because it became a new company and its past record was no longer a good predictor of its future earnings. Will the same be true of ADP? That said, it does have a pretty solid core of business that isn't likely to totally melt away (as, for example, ADCT did). Their PERT-A did predict this -- look at column I -- growth running very slowly in there for awhile. Better the past two quarters as sales growth, but earnings growth dropped off. Their pre-tax profit, column G, is really all over the map, which is weird, IMO, for a company that's really doing pretty much the same thing day in and day out. Makes me wonder what's going on. Why did the sales boost in 1999 not translate into an earnings boost? It doesn't pass my barbed wire test. But looking anyhow at Section 3, I ripped the bottom out of it with a 0 percent earnings growth and a 20 high PE. Use the forecast low of 17.5. Comes out in the hold zone with only a 0.7 u/d. BTW, I also note that their shares outstanding are all over the map. Increasing significantly up to 2000, then suddenly starting to drop off. I'm not sure what they think they're doing. Lots of questions. Too many questions for my blood. I suspect it may well bounce back, may well be a good bottom feed that will come up just because it's been hit so hard. But the fundamentals aren't there, IMO, to justify it on the model.