Assessing Automatic Data Processing (ADP) Valuation After Recent Share Price Weakness

Automatic Data Processing (ADP) has drawn fresh attention after a recent pullback, with the stock showing negative returns over the past month and past 3 months, putting its long term track record under closer investor scrutiny.

See our latest analysis for Automatic Data Processing.

At a share price of US$257.07, ADP has seen short term weakness, with a 30 day share price return of a 3.39% decline and a year to date share price return of 1.66%. The 1 year total shareholder return of a 9.92% decline contrasts with its stronger 3 and 5 year total shareholder returns, suggesting recent momentum has been fading compared with its longer term record.

If ADP’s pullback has you reassessing opportunities, this could be a good moment to broaden your watchlist with fast growing stocks with high insider ownership.

With ADP trading around US$257.07 and showing an estimated 18.6% discount to one intrinsic value estimate, the key question is whether recent weakness leaves upside on the table or whether the market already reflects its future growth.

Most Popular Narrative: 33.7% Undervalued

According to yiannisz, the narrative pegs ADP’s fair value at US$387.77 per share versus the last close of US$257.07, framing a sizeable valuation gap for investors to consider.

According to a recent discounted cash flow (DCF) analysis, ADP’s fair value is estimated at around $387.77 per share, while the stock trades at approximately $279.63, suggesting it may be 27.9% undervalued. That is a notable margin for long-term investors, if the company can execute on its AI-driven ambitions without eroding profitability in the short run.

Read the complete narrative.

This raises the question of what kind of revenue profile and profit margins would need to hold for this valuation to be supported, particularly with a premium future earnings multiple in play.

Result: Fair Value of $387.77 (UNDERVALUED)

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

However, the thesis could be tested if ADP’s mid single digit annual revenue and net income growth of 5.32% and 6.73% weaken, or if AI investments pressure margins longer than expected.

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

Build Your Own Automatic Data Processing Narrative

If you see the numbers differently or prefer to work through the data yourself, you can build a tailored view in just a few minutes, starting with Do it your way.

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding Automatic Data Processing.

Looking for more investment ideas?

If ADP is already on your radar, do not stop there. Cast a wider net so you are not missing opportunities that might fit your style better.

• Zero in on potential value opportunities by checking out these 883 undervalued stocks based on cash flows that may be trading below what their cash flows suggest.
• Tap into the AI trend and see which businesses are pushing automation and data analytics further with these 25 AI penny stocks.
• Position yourself for income potential by reviewing these 12 dividend stocks with yields > 3% that might suit a steady dividend focused approach.

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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