What’s an Investor to Think of Automatic Data Processing (ADP) and Paychex, Inc. (PAYX)?

These stocks look fully valued

Paychex, Inc. (NASDAQ:PAYX) booked $1.56 in full fiscal year diluted earnings per share, meaning at its recent price of $38 per share, Paychex was trading for 24 times trailing earnings.

Quite frankly, it shouldn’t be a surprise that Paychex fell so much when it released earnings. Businesses have been extremely reluctant to add to their payrolls in light of the economic uncertainty facing the global economy. As a result, there simply isn’t enough growth to justify paying 24 times Paychex, Inc. (NASDAQ:PAYX)’s earnings.

To be fair, Automatic Data Processing (NASDAQ:ADP) has shown better growth in recent periods than its rival. ADP recently reported a solid fiscal third quarter, in which revenue and earnings per share from continuing operations increased 7% and 9%, respectively. Taking a longer-term view, the company’s revenue and diluted earnings per share have grown 6% and 5.7%, respectively, through the first nine months of the fiscal year.

Those numbers are certainly respectable, but judging by its immense share price appreciation, you’d think ADP was a high-growth start-up. The stock is up more than 20% just to start 2013, and as a result, the company now trades for 24 times its trailing earnings per share.

Both these stocks trade for significantly higher earnings multiples than the broader market. The S&P 500 Index carries a P/E ratio in the high teens.

As a result, investors would be wise to wait for a meaningful pullback before jumping in to either Paychex or Automatic Data Processing (NASDAQ:ADP).

The article What’s an Investor to Think of ADP and Paychex? originally appeared on Fool.com.

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