Assessing ADP's (ADP) Valuation Following Recent Share Price Decline

Automatic Data Processing (ADP) shares have come under pressure recently, retreating over the past month as investors reassess valuations across business services stocks. The company’s performance trends open up some interesting questions about future growth and competitive resilience.

See our latest analysis for Automatic Data Processing.

ADP’s share price has slipped about 11% over the past month, with the year-to-date decline now topping 10%. That marks a meaningful shift in sentiment from its strong multi-year run. Its five-year total shareholder return still stands at an impressive 74%, which is evidence that longer-term holders have seen substantial gains even as momentum fades lately.

If you’re on the lookout for new opportunities during this industry pullback, now is a great moment to broaden your perspective and discover fast growing stocks with high insider ownership

With ADP’s stock losing ground despite steady growth and notable long-term returns, investors may wonder if the recent weakness is a sign of undervaluation or if the market is already reflecting all future gains in the price.

Most Popular Narrative: 16.5% Undervalued

With Automatic Data Processing’s fair value now set at $311.62 and shares last closing at $260.30, there is a significant gap that has market-watchers buzzing. This latest narrative offers detailed reasoning behind a higher fair value, pointing to strategic developments within the business.

Adoption of Next Gen products (like Lyric HCM and Workforce Now Next Gen) and integration of acquisitions (e.g., WorkForce Software) are accelerating demand for advanced, cloud-based, and AI-driven HR solutions. These factors are directly locking in higher average revenue per user and supporting earnings growth through margin expansion.

Read the complete narrative.

Want to know the catalyst behind this valuation jump? The narrative hinges on a potent mix of product innovation, margin expansion, and financial projections that stand out in today’s market. Curious what growth assumptions are priced in? See what’s fueling analyst optimism and whether you agree with the numbers that drive this fair value target.

Result: Fair Value of $311.62 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, intensifying competition and longer sales cycles could still derail ADP’s growth outlook. This could put future earnings and profit margin expansion at risk.

Find out about the key risks to this Automatic Data Processing narrative.

Another View: What Do Multiples Say?

Looking at ADP’s valuation through its price-to-earnings ratio, the stock trades at 25.5x, very close to the US Professional Services industry average of 25.4x, but lower than the peer average of 29.9x. Compared to our fair ratio of 32.5x, there is a case the market leaves some headroom. Does this pricing suggest opportunity or is caution still warranted as multiples could shift?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Automatic Data Processing Narrative

If you’d rather dig into the numbers firsthand or shape the story yourself, building your own perspective with our tools takes just a few minutes. Give it a try and Do it your way

A great starting point for your Automatic Data Processing research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

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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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