Analyzing Automatic Data Processing In Comparison To Competitors In Professional Services Industry

In today's fast-paced and competitive business landscape, it is essential for investors and industry enthusiasts to thoroughly analyze companies before making investment decisions. In this article, we will conduct a comprehensive industry comparison, evaluating Automatic Data Processing ADP against its key competitors in the Professional Services industry. By examining key financial metrics, market position, and growth prospects, we aim to provide valuable insights for investors and shed light on company's performance within the industry.

Automatic Data Processing Background

ADP is a provider of payroll and human capital management solutions servicing the full scope of businesses from micro to global enterprises. ADP was established in 1949 and serves over 1 million clients primarily in the United States. ADP's employer services segment offers payroll, human capital management solutions, human resources outsourcing, insurance and retirement services. The smaller but faster-growing professional employer organization segment provides HR outsourcing solutions to small and midsize businesses through a co-employment model.

When analyzing Automatic Data Processing, the following trends become evident:

• At 30.35, the stock's Price to Earnings ratio is 0.41x less than the industry average, suggesting favorable growth potential.

• The elevated Price to Book ratio of 29.25 relative to the industry average by 5.16x suggests company might be overvalued based on its book value.

• The stock's relatively high Price to Sales ratio of 6.02, surpassing the industry average by 2.57x, may indicate an aspect of overvaluation in terms of sales performance.

• The company has a higher Return on Equity (ROE) of 21.57%, which is 17.16% above the industry average. This suggests efficient use of equity to generate profits and demonstrates profitability and growth potential.

• The Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $1.25 Billion is 13.89x above the industry average, highlighting stronger profitability and robust cash flow generation.

• The gross profit of $1.76 Billion is 5.87x above that of its industry, highlighting stronger profitability and higher earnings from its core operations.

• With a revenue growth of 6.03%, which surpasses the industry average of 2.67%, the company is demonstrating robust sales expansion and gaining market share.

Debt To Equity Ratio

The debt-to-equity (D/E) ratio gauges the extent to which a company has financed its operations through debt relative to equity.

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 terms of the Debt-to-Equity ratio, Automatic Data Processing can be assessed by comparing it to its top 4 peers, resulting in the following observations:

• In terms of the debt-to-equity ratio, Automatic Data Processing is positioned in the middle among its top 4 peers.

• This suggests a relatively balanced financial structure, where the company maintains a moderate level of debt while also utilizing equity financing with a debt-to-equity ratio of 0.95.

Key Takeaways

Automatic Data Processing (ADP) has a low PE ratio compared to its peers in the Professional Services industry, indicating that it may be undervalued. The high PB and PS ratios suggest that the market values ADP's assets and sales higher than its peers. ADP's high ROE, EBITDA, gross profit, and revenue growth indicate strong financial performance compared to its industry peers. Overall, ADP appears to be a financially robust company with potential for growth in the Professional Services industry.

This article was generated by Benzinga's automated content engine and reviewed by an editor.