Automatic Data Processing (ADP) Is Going Nowhere. Here’s Why.

The business of cutting paychecks for other folks’ employees isn’t what it used to be — and lately, one stock in this business has been underperforming the stock market as a whole, and performing particularly poorly relative to its peers: Automatic Data Processing (NASDAQ:ADP) . Why?

Three reasons.

ADP stock is worse than average
Automatic Data Processing (NASDAQ:ADP) shares have been on a bit of a tear these past 12 months, outperforming not just the S&P 500 in general, but also rivals Paychex, Inc. (NASDAQ:PAYX) and Intuit Inc. (NASDAQ:INTU) in particular. It’s a bit of a mystery, however, understanding why investors like ADP stock so much.

Turns out, when you stack up Automatic Data Processing (NASDAQ:ADP) stock against its two smaller rivals, there’s actually precious little to recommend it. ADP’s P/E ratio of 24 is no bargain. It’s roughly equal to the 24-ish P/E at Paychex, and a bit more expensive than the 22 P/E at Intuit Inc. (NASDAQ:INTU).

Worse, when you lay the three companies side by side, you can plainly see that ADP stock is the only one of the three that’s currently generating less real cash profit than it reports on its income statement. Both Intuit and Paychex, Inc. (NASDAQ:PAYX) boast free cash flow far superior to their reported GAAP earnings.

And you can see for yourself how Automatic Data Processing (NASDAQ:ADP) currently has the worst free cash flow yield of the bunch:

ADP Free Cash Flow Yield data by YCharts.

ADP stock grows too slow
Now, it might be forgivable for ADP to produce less cash per dollar of market cap than its peers — if the company were at least growing much faster than these peers. That way, maybe, at some time in the future, we could hope to see ADP turn the tables on its rivals — but that’s not happening.

Rather, Automatic Data Processing (NASDAQ:ADP) stock’s historical growth rate is only in the middle of the pack: