Is There an Opportunity in ADP Stock After a 10% Drop in 2025?

• Wondering whether Automatic Data Processing is priced just right or if there might be a hidden value waiting to be discovered? You are not alone. Many investors are taking a closer look at the stock these days.
• After some impressive long-term growth, ADP’s share price has dipped recently, sliding 8.0% over the past week and 10.7% for the month. This puts year-to-date returns at -9.8%.
• Market chatter has picked up around Automatic Data Processing in light of broader tech volatility and sector rotation. These trends have fueled recent price moves. In particular, investor conversations are centered on ADP's resilience in the evolving economic climate and how it is positioning itself within the competitive HR tech space.
• Currently, the company scores a solid 4 out of 6 on our value checklist, indicating it is undervalued in several key metrics. Let’s break down what goes into this valuation rating, and stay with us until the end for a perspective on value that most investors miss.

Automatic Data Processing delivered -8.9% returns over the last year. See how this stacks up to the rest of the Professional Services industry.

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

A Discounted Cash Flow (DCF) model estimates what a company is worth by projecting its future cash flows and then discounting them back to today's value. This approach helps investors understand whether a stock is trading above or below its intrinsic value based on realistic expectations for growth and profitability.

For Automatic Data Processing, the DCF model uses a two-stage Free Cash Flow to Equity method. The company’s latest trailing twelve months' Free Cash Flow stands at $4.34 billion. Analyst forecasts, combined with Simply Wall St’s projections, estimate that Free Cash Flow will continue to grow steadily, reaching $8.47 billion by 2035. Within the next five years, analysts anticipate cash flows could increase to $6.4 billion by 2028. Beyond that, further growth is extrapolated at a measured pace based on industry expectations.

After discounting these future cash flows, the model calculates an intrinsic value of $388.48 per share. When compared to the current market price, this figure implies that Automatic Data Processing is trading at a 32.8% discount. This signals that the stock is undervalued according to this method.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Automatic Data Processing is undervalued by 32.8%. Track this in your watchlist or portfolio, or discover 848 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 accepted measure for evaluating profitable companies like Automatic Data Processing because it directly compares a company’s stock price to its earnings. This offers clear insight into how much investors are willing to pay for each dollar of profit. For established businesses with reliable earnings, the PE ratio is often one of the most meaningful indicators of value.

What is considered a “normal” PE ratio depends on several factors, primarily a company’s expected growth and risk profile. Steady, low-risk businesses generally merit higher PE ratios, especially if future earnings growth is expected to outpace the broader market. On the other hand, higher risk or slower growth companies tend to have lower suitable multiples.

Currently, Automatic Data Processing trades at a PE ratio of 25.9x. This is almost equal to the Professional Services industry average of 25.3x, but lags behind its peers, which on average trade at 30.1x. Simply Wall St’s Fair Ratio for ADP stands at 32.7x, factoring in the company’s growth prospects, high margins, size, and risk profile. Unlike a standard peer or industry comparison, the Fair Ratio provides a more tailored benchmark because it is built from a comprehensive set of drivers unique to ADP’s position and performance.

Since ADP’s current PE of 25.9x is well below its Fair Ratio of 32.7x, this analysis suggests the stock is undervalued by this metric.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1382 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 your own story about a company, an easy way to connect what you believe about Automatic Data Processing’s future (its growth drivers, risks, and industry trends) to specific financial forecasts and ultimately to an estimated fair value.

Narratives make investing personal and practical by letting you spell out your reasons and assumptions directly alongside your forecast for a company’s future revenue, earnings, and margins. On Simply Wall St, millions of investors use Narratives on the Community page to build and share these perspectives, making it simple to track how your view lines up with the latest news and analyst updates.

A Narrative helps you decide when to buy or sell by comparing your Fair Value to the current share price, dynamically updating as new information such as earnings reports or major announcements comes in. For instance, with Automatic Data Processing, some investors might highlight accelerating global demand for cloud-based HR tools and see a fair value above $320, while others may focus on slowing bookings and heightened competition, putting their fair value closer to $297. No matter your perspective, Narratives allow you to turn your outlook into a clear investment decision and adapt as the story evolves.

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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