Is Automatic Data Processing Stock Underperforming the S&P 500?

Valued at $103.3 billion by market cap, Automatic Data Processing, Inc. (ADP) is one of the world’s leading providers of human-capital management (HCM) services. Headquartered in Roseland, New Jersey, ADP offers cloud-based solutions that streamline payroll, HR, talent and time management, tax/benefits administration, compliance, and related outsourcing services for companies of all sizes.

Companies worth $10 billion or more are generally described as “large-cap stocks,” and ADP perfectly fits that description, with its market cap exceeding this mark, underscoring its size, influence, and dominance within the software – application industry. With over 75 years in the business, ADP serves more than a million clients globally. The company is known for its continuous investment in innovative technology to stay ahead of the competition. Operating in more than 140 countries, ADP has a strong global presence.

Despite its notable strength, ADP has fallen 22.6% from its 52-week high of $329.93. Over the past three months, ADP stock declined 16.1%, trailing the S&P 500 Index ($SPX) 5.3% surge during the same time frame.

In the longer term, shares of ADP dropped 12.8% on a YTD basis and 16.8% over the past 52 weeks, outperforming $SPX’s YTD 16.5% gains and 14.2% returns over the last year.

To confirm the bearish trend, ADP has been trading above its 50-day and 200-day moving averages since mid-June, experiencing some fluctuations.

Although Automatic Data Processing delivered stronger-than-expected Q1 results on October 29, its stock still dropped 6.6% in the trading session. Revenue rose 7.1% year over year to $5.2 billion, 95 basis points above consensus. Its adjusted EPS increased 6.9% to $2.49, topping expectations by 2.1%. Yet, a sharp 22.1% year-over-year decline in operating cash flow to $642.3 million appeared to weigh on investor sentiment, contributing to the stock’s slide.

In the competitive arena of the software application industry, Paychex, Inc. (PAYX) has trailed ADP, with a 20.4% downtick on a YTD basis and a 23.4% gain over the past 52 weeks.