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Automatic Data Processing, Inc. (NASDAQ:ADP) maintained its current share price over the past couple of month on the NASDAQGS, with a relatively tight range of US$287 to US$310. However, does this price actually reflect the true value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Automatic Data Processing’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Automatic Data Processing
What Is Automatic Data Processing Worth?
According to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Automatic Data Processing’s ratio of 31.87x is above its peer average of 23.19x, which suggests the stock is trading at a higher price compared to the Professional Services industry. In addition to this, it seems like Automatic Data Processing’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Automatic Data Processing look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Automatic Data Processing's earnings over the next few years are expected to increase by 24%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? It seems like the market has well and truly priced in ADP’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe ADP should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on ADP for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for ADP, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.