Why Automatic Data Processing, Inc. Shares Lost 10.5% in August

What happened

Stock in Automatic Data Processing, Inc. (NASDAQ: ADP) lost 10.5% last month, according to data from S&P Global Intelligence.

So what

Shares of the payroll and human resources software giant settled back to prior levels in August after spiking roughly 13% on July 27, when news outlets reported that activist investor Bill Ackman had taken a significant stake in the company through his Pershing Square Capital Management firm.

Pershing Square revealed an 8.3% stake in the company on Aug. 4, and on Aug. 17, Ackman made a detailed presentation to investors laying out his case for Pershing to gain three seats on ADP's board. Ackman believes that APD has overemphasized acquisition over internal innovation as it has grown and has failed to develop best-in-class software offerings. The activist investor claims that competitors have thus been able to take market share from APD, and that outmoded technology is also keeping the company from realizing better margins.

It's interesting that APD shares, which were already drifting lower after the late July leap, fell again during Ackman's Aug. 17 presentation. While there's some substance to Ackman's argument, ADP has performed well both from an earnings and stock-price perspective. The company has pointed out that ADP stock has posted a 203% return in the six-year tenure of current CEO Carlos Rodriguez. Thus, investors may have grasped that a wide revamp of ADP's internal technology capability may look enticing as a PowerPoint slide but is vastly more difficult to execute. In short, Ackman's presentation didn't convince shareholders that he has a clear path to improving already handsome profit and stock-price performance.

Now what

Currently, ADP's management and Pershing Square are trying to influence investors before a vote during the company's annual shareholder meeting on Nov. 7. ADP has pushed back against Ackman and asserted that Pershing Square actually has only a 2% share that it can use to vote on Nov. 7, as the rest of the firm's stake exists as options and not common stock.

If you're a shareholder or potential investor, you can read the following articles for more detail on Pershing Square's position, and ADP management's quite different perspective.

10 stocks we like better than Automatic Data ProcessingWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Automatic Data Processing wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of September 5, 2017

Asit Sharma has no position in any of the stocks mentioned. The Motley Fool recommends Automatic Data Processing. The Motley Fool has a disclosure policy.