Amidst today’s fast-paced and highly competitive business environment, it is crucial for investors and industry enthusiasts to conduct comprehensive company evaluations. In this article, we will delve into an extensive industry comparison, evaluating Automatic Data Processing (NASDAQ:ADP) in comparison to its major competitors within the Professional Services industry. By analyzing critical financial metrics, market position, and growth potential, our objective is to provide valuable insights for investors and offer a deeper understanding of company’s performance in the industry.
Automatic Data Processing Background
Automatic Data Processing is a global technology company providing cloud-based human capital management solutions, enabling clients to better implement payroll, talent, time, tax, and benefits administration. Additionally, ADP provides human resource outsourcing solutions that permit customers to offload some of their traditional HR tasks. The company operates through two segments: employer services and professional employer organization services. Employer services consist of the company’s HCM products as well as a la carte HRO solutions. PEO services contain ADP’s comprehensive HRO solution, where it acts as a co-employer with its customer. As of fiscal 2025, ADP serves over 1.1 million clients and pays over 42 million workers across 140 countries.
| Company | P/E | P/B | P/S | ROE | EBITDA (in billions) | Gross Profit (in billions) | Revenue Growth |
|---|---|---|---|---|---|---|---|
| Automatic Data Processing Inc | 21.66 | 14.20 | 4.32 | 16.64% | $1.65 | $2.47 | 6.16% |
| Paychex Inc | 22.40 | 9.16 | 5.94 | 10.07% | $0.7 | $1.15 | 18.28% |
| Paycom Software Inc | 15.52 | 4.01 | 3.51 | 6.31% | $0.2 | $0.41 | 9.16% |
| Paylocity Holding Corp | 26.77 | 5.58 | 3.79 | 4.56% | $0.1 | $0.28 | 10.39% |
| Korn Ferry | 13.85 | 1.83 | 1.26 | 3.73% | $0.14 | $0.64 | 7.02% |
| Trinet Group Inc | 18.70 | 22.46 | 0.50 | 31.34% | $0.08 | $0.22 | -1.6% |
| Upwork Inc | 18.10 | 3.15 | 2.71 | 4.74% | $0.03 | $0.16 | 4.1% |
| Insperity Inc | 70.12 | 14.59 | 0.19 | -20.1% | $-0.01 | $0.2 | 3.97% |
| Barrett Business Services Inc | 17.06 | 3.79 | 0.76 | 8.85% | $0.03 | $0.08 | 8.38% |
| Kforce Inc | 17.68 | 4.94 | 0.46 | 4.02% | $0.02 | $0.09 | -0.19% |
| Fiverr International Ltd | 25.82 | 1.44 | 1.35 | 1.38% | $0.0 | $0.09 | 8.31% |
| Average | 24.6 | 7.1 | 2.05 | 5.49% | $0.13 | $0.33 | 6.78% |
Through a thorough examination of Automatic Data Processing, we can discern the following trends:
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The Price to Earnings ratio of 21.66 is 0.88x lower than the industry average, indicating potential undervaluation for the stock.
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With a Price to Book ratio of 14.2, which is 2.0x the industry average, Automatic Data Processing might be considered overvalued in terms of its book value, as it is trading at a higher multiple compared to its industry peers.
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The Price to Sales ratio of 4.32, which is 2.11x the industry average, suggests the stock could potentially be overvalued in relation to its sales performance compared to its peers.
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The Return on Equity (ROE) of 16.64% is 11.15% above the industry average, highlighting efficient use of equity to generate profits.
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The Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $1.65 Billion is 12.69x above the industry average, highlighting stronger profitability and robust cash flow generation.
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Compared to its industry, the company has higher gross profit of $2.47 Billion, which indicates 7.48x above the industry average, indicating stronger profitability and higher earnings from its core operations.
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With a revenue growth of 6.16%, which is much lower than the industry average of 6.78%, the company is experiencing a notable slowdown in sales expansion.
Debt To Equity Ratio
The debt-to-equity (D/E) ratio provides insights into the proportion of debt a company has in relation to its equity and asset value.
Considering the debt-to-equity ratio in industry comparisons allows for a concise evaluation of a company’s financial health and risk profile, aiding in informed decision-making.
In light of the Debt-to-Equity ratio, a comparison between Automatic Data Processing and its top 4 peers reveals the following information:
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Among its top 4 peers, Automatic Data Processing has a stronger financial position with a lower debt-to-equity ratio of 0.68.
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This indicates that the company relies less on debt financing and maintains a more favorable balance between debt and equity, which can be viewed positively by investors.
Key Takeaways
For Automatic Data Processing in the Professional Services industry, the PE, PB, and PS ratios indicate that the company is undervalued compared to its peers. In terms of ROE, EBITDA, and gross profit, Automatic Data Processing shows strong performance, suggesting efficient operations and profitability. However, the low revenue growth rate may be a concern for the company’s future prospects within the industry.
This article was generated by Benzinga’s automated content engine and reviewed by an editor.
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