Choosing Between Hot Stocks: Automatic Data Processing, Inc. (ADP), Neos Therapeutics, Inc. (NEOS)

The shares of Automatic Data Processing, Inc. have increased by more than 18.87% this year alone. The shares recently went up by 3.89% or $5.22 and now trades at $139.30. The shares of Neos Therapeutics, Inc. (NASDAQ:NEOS), has slumped by -34.31% year to date as of 06/12/2018. The shares currently trade at $6.70 and have been able to report a change of -0.74% over the past one week.

The stock of Automatic Data Processing, Inc. and Neos Therapeutics, Inc. were two of the most active stocks on Tuesday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 14.20% versus 42.20%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that ADP will grow it’s earning at a 14.20% annual rate in the next 5 years. This is in contrast to NEOS which will have a positive growth at a 42.20% annual rate. This means that the higher growth rate of NEOS implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. ADP has an EBITDA margin of 21.52%, this implies that the underlying business of ADP is more profitable. The ROI of ADP is 29.00% while that of NEOS is -83.00%. These figures suggest that ADP ventures generate a higher ROI than that of NEOS.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, ADP’s free cash flow per share is a positive 6.55, while that of NEOS is negative -0.05.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for ADP is 1.10 and that of NEOS is 1.80. This implies that it is easier for ADP to cover its immediate obligations over the next 12 months than NEOS.


ADP currently trades at a forward P/E of 28.29, a P/B of 15.24, and a P/S of 4.72 while NEOS trades at a P/S of 6.35. This means that looking at the earnings, book values and sales basis, ADP is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of ADP is currently at a 4.67% to its one-year price target of 133.08. Looking at its rival pricing, NEOS is at a -60.19% relative to its price target of 16.83.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), ADP is given a 2.70 while 2.00 placed for NEOS. This means that analysts are more bullish on the outlook for ADP stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for ADP is 1.75 while that of NEOS is just 8.10. This means that analysts are more bullish on the forecast for ADP stock.


The stock of Automatic Data Processing, Inc. defeats that of Neos Therapeutics, Inc. when the two are compared, with ADP taking 6 out of the total factors that were been considered. ADP happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, ADP is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for ADP is better on when it is viewed on short interest.

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