Does ADP's Recent Share Decline Signal a Hidden Opportunity for Investors in 2025?

• Ever wondered if Automatic Data Processing is actually worth its current price, or if there could be hidden value the market is missing?
• The stock recently closed at $249.06, but has dropped 2.2% in the past week and is down 14.0% year-to-date. This hints at some renewed market caution despite a strong 58.5% run over the past five years.
• Some of this movement can be traced to broader sector volatility and evolving trends in payroll and HR tech. Investors are weighing both digital transformation opportunities and competition from new entrants. Recent industry headlines highlight how shifts in workforce management needs are reshaping expectations for the entire field.
• According to our analysis, Automatic Data Processing currently scores a 4 out of 6 on our value checks. This suggests it stacks up well but still leaves room for debate. Let's run through the different approaches to valuing the company and stay tuned for a smarter, more holistic view of valuation that will close out the article.

Find out why Automatic Data Processing's -16.5% return over the last year is lagging behind its peers.

Approach 1: Automatic Data Processing Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's worth by forecasting its future cash flows and then discounting those projections back to today's value. This gives a sense of what the business is truly worth based on its ability to generate cash going forward, not just its current earnings or assets.

For Automatic Data Processing, the most recent annual Free Cash Flow was $4.16 billion. Analysts project steady growth, with Free Cash Flow expected to reach $5.58 billion by 2028. Beyond this, further projections extrapolated by Simply Wall St suggest that by 2035, annual Free Cash Flow could climb as high as $6.97 billion. All cash flows are presented in US dollars for consistency.

Taking these numbers into account, the DCF model values Automatic Data Processing at an estimated intrinsic value of $317.13 per share. Given the current share price of $249.06, this points to the stock trading at a 21.5% discount to its estimated fair value. In other words, the DCF model suggests the stock is undervalued compared to its long-term cash generation potential.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Automatic Data Processing is undervalued by 21.5%. Track this in your watchlist or portfolio, or discover 916 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Automatic Data Processing.

Approach 2: Automatic Data Processing Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric for mature, profitable companies like Automatic Data Processing. It gauges what investors are willing to pay today for a dollar of current earnings, making it an intuitive benchmark for stock value, especially when the company generates steady profits.

PE ratios are influenced by growth prospects and risk. Higher expected earnings growth or lower risk can justify a higher PE ratio, while slower growth or greater uncertainty will typically lead to lower multiples. In other words, what counts as a "fair" PE ratio varies depending on the company's outlook and competitive landscape.

Automatic Data Processing currently trades at a PE of 24.4x. This sits slightly above the Professional Services industry average of 23.7x and below the peer group average of 26.3x. On the surface, this suggests the stock is valued in line with its sector, but slightly cheaper than its closest peers.

However, Simply Wall St’s proprietary "Fair Ratio" goes beyond basic averages. It reflects Automatic Data Processing’s growth prospects, profitability, industry, market cap, and business risks to define a tailored fair multiple. For ADP, the Fair Ratio is 29.7x, higher than both the current PE and typical benchmarks. This suggests the market is not pricing in the company’s full potential or relative advantages.

Because the current PE is meaningfully lower than the Fair Ratio, the stock appears undervalued by this measure. The Fair Ratio provides a more complete perspective than simple peer or industry comparisons, since it factors in nuances like risk profile, long-term growth, and company scale.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1423 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Automatic Data Processing Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a simple, structured way for investors to connect the story they believe about a company—such as their outlook on the company's strategy, industry trends, and risks—with concrete financial forecasts, such as future revenues, profit margins, and fair value estimates.

With Narratives, you go beyond just the numbers and benchmarks. You articulate your own investment thesis in plain language, then anchor it to specific financial expectations. This approach links the company’s story directly to its projected results and helps bridge the gap between qualitative insights and quantifiable valuation.

Narratives are accessible for everyone on Simply Wall St's Community page, where millions of users shape their perspectives and see how new information, like news or earnings updates, can automatically refine both the storyline and its corresponding fair value.

By comparing each Narrative’s fair value against the current share price, investors can easily decide if now looks like a buying or selling opportunity based on their unique assumptions and risk appetite.

For example, within the Simply Wall St Community, some investors see Automatic Data Processing's fair value as high as $387.77, while others take a much more cautious view at $293.23. This demonstrates how the Narrative approach captures the full spectrum of investor opinion with clarity and transparency.

Do you think there's more to the story for Automatic Data Processing? Head over to our Community to see what others are saying!

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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