ADP

ADP is a textbook wide-moat compounder. Revenue has climbed every year from $15.0B (FY21) to $20.6B (FY25), a steady ~8% CAGR, with FY25 up 7.1% — and management says that 7% holds on an organic constant-currency basis, so growth is real, not FX- or acquisition-flattered. Net income rose 8.7% to $4.08B at a 19.8% net margin, EPS grew 9.7% to $9.98, and operating cash flow jumped 18.8% to $4.94B against a low-capital-intensity model. The franchise is sticky: ES client revenue retention of 92.1% and record-high client-satisfaction scores explain why this business keeps compounding. Capital return is disciplined and growing — $2.4B dividends plus $1.28B buybacks ($3.7B total), with the share count down 0.7%. The 65.9% ROE and 7.62x liabilities/equity look extreme but are an artifact of the model: most liabilities are client payroll funds held in float, and actual leverage is modest (LT debt $3.97B against $3.35B cash and ~$4.9B annual operating cash flow). This is one of the highest-quality businesses in the market.

The problem is price, not quality. At $223.55 the stock trades at 22.4x trailing EPS and 4.4x sales for a business growing high-single digits — a full multiple that already capitalizes the moat, the retention, and the cash return. There is no margin of safety here. The growth engine is also showing signs of cooling at the top of the funnel: pays-per-control (employees on existing US clients' payrolls) grew just 1%, and ES new-business bookings grew only 3% in FY25 — both modest readings that make the forward revenue line dependent on pricing and the WorkForce Software/PEI acquisitions rather than organic volume. The auditor flagged goodwill on the next-gen (Lyric) platform reporting unit (~$683M) as a critical audit matter precisely because forecasting its revenue and margin requires heavy judgment with limited history.