Is ADP a good stock to buy? We came across a bullish thesis on Automatic Data Processing, Inc. on Quality At A Fair Price’s Substack. In this article, we will summarize the bulls’ thesis on ADP. Automatic Data Processing, Inc.’s share was trading at $229.08 as of June 8th. ADP’s trailing and forward P/E were 21.64 and 19.08 respectively according to Yahoo Finance.
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Automatic Data Processing (ADP) is one of the world’s leading providers of cloud-based human capital management solutions, offering payroll processing, HR outsourcing, benefits administration, workforce analytics, and talent management software to businesses of all sizes. The company has built a dominant position in mission-critical workforce management infrastructure, serving millions of employees globally through highly recurring and sticky revenue streams.
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Despite its strong competitive moat and consistent execution, ADP’s stock has come under pressure amid the broader “SaaSpocalypse” that has weighed heavily on software and cloud-related equities. After reaching a 52-week high near $330, the stock has retraced sharply and now trades around $215, creating what appears to be a compelling long-term entry point for investors seeking both quality and income.
The recent decline has pushed ADP’s forward dividend yield to approximately 3.16%, significantly above its 5-year average yield of 2.15%, implying that the stock may currently trade at more than a 30% discount to fair value based on dividend yield theory. Importantly, the underlying fundamentals remain exceptionally strong. Automatic Data Processing has increased its dividend for more than 25 consecutive years, reinforcing its status as a reliable compounder with disciplined capital allocation and resilient free cash flow generation.
Dividend growth also remains healthy, with the company recently delivering another increase of more than 10%, highlighting management’s confidence in future earnings power. Looking ahead, ADP is positioned to deliver an estimated future annual return of roughly 18%, supported by strong projected earnings growth, continued dividend expansion, and the potential for a meaningful valuation rerating as sentiment toward high-quality software franchises improves.
Previously, we covered a bullish thesis on Automatic Data Processing, Inc. (ADP) by David in November 2024, which highlighted the company’s dominant workforce management platform, resilient cash flows, and payroll float advantages. ADP’s stock price has depreciated by approximately 24.81% since our coverage. Quality At A Fair Price shares a similar view but emphasizes on ADP’s discounted valuation, rising dividend yield, and long-term upside potential.
Automatic Data Processing, Inc. is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 67 hedge fund portfolios held ADP at the end of the first quarter which was 68 in the previous quarter. While we acknowledge the risk and potential of ADP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ADP and that has 10,000% upside potential, check out our report about this cheapest AI stock.
Disclosure: None.
