Stock Analysis

Could The Automatic Data Processing, Inc. (NASDAQ:ADP) Ownership Structure Tell Us Something Useful?

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NasdaqGS:ADP
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A look at the shareholders of Automatic Data Processing, Inc. (NASDAQ:ADP) can tell us which group is most powerful. Institutions often own shares in more established companies, while it's not unusual to see insiders own a fair bit of smaller companies. We also tend to see lower insider ownership in companies that were previously publicly owned.

Automatic Data Processing has a market capitalization of US$69b, so it's too big to fly under the radar. We'd expect to see both institutions and retail investors owning a portion of the company. Our analysis of the ownership of the company, below, shows that institutions own shares in the company. Let's delve deeper into each type of owner, to discover more about Automatic Data Processing.

View our latest analysis for Automatic Data Processing

ownership-breakdown
NasdaqGS:ADP Ownership Breakdown January 23rd 2021

What Does The Institutional Ownership Tell Us About Automatic Data Processing?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

As you can see, institutional investors have a fair amount of stake in Automatic Data Processing. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Automatic Data Processing's historic earnings and revenue below, but keep in mind there's always more to the story.

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NasdaqGS:ADP Earnings and Revenue Growth January 23rd 2021

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Automatic Data Processing is not owned by hedge funds. The Vanguard Group, Inc. is currently the company's largest shareholder with 8.9% of shares outstanding. In comparison, the second and third largest shareholders hold about 7.2% and 4.3% of the stock.

A deeper look at our ownership data shows that the top 25 shareholders collectively hold less than half of the register, suggesting a large group of small holders where no single shareholder has a majority.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Automatic Data Processing

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our most recent data indicates that insiders own less than 1% of Automatic Data Processing, Inc.. It is a very large company, so it would be surprising to see insiders own a large proportion of the company. Though their holding amounts to less than 1%, we can see that board members collectively own US$106m worth of shares (at current prices). It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.

General Public Ownership

The general public holds a 18% stake in Automatic Data Processing. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too.

Many find it useful to take an in depth look at how a company has performed in the past. You can access this detailed graph of past earnings, revenue and cash flow.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

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