Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
No. of Recommendations: 5
Adding this to my watch list...
Stock is down from a high of $326 to $257 (the recent low was $249). TTM EPS of $10.13 with solid history of growth.
Positives
* Proven business model
* Strong moat
* Decent margins
Negatives
* Macro US exposure would be a risk
* Valuation is lower than historical levels, but still not "cheap"
Anyone else watching this? I feel like if it got down near $200 it would be worth a strong look. (last traded at that level in 2022).
tecmo
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No. of Recommendations: 6
ADP continues to fall, down to $245, they reported earnings that were "fine"
* Revenue up 6%
* EPS of $2.62 up 11%
TTM EPS is now $10.43, so trading a litter over 25x , the historical range has been 25x - 32x.
Still watching, hopefully it gets down near $200 and then I will do a more serious look.
tecmo
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No. of Recommendations: 0
Getting juicy... bounced off $210 and is currently at $215 or so.
forecast is for around $11.00 per share of earnings this year...
tecmo
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No. of Recommendations: 3
Just purchased some ADP at $200.65
tecmo
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No. of Recommendations: 4
Just purchased some ADP at $200.65
You're probably happier about that than anyone who bought in the last 4.5 - 5 years.
Jim
No. of Recommendations: 2
You're probably happier about that than anyone who bought in the last 4.5 - 5 years.
There are few more happy people I guess... now trading at $188.00 ; if you think they can earn $11 / share this year this is nearing table-pounding territory...
tecmo
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No. of Recommendations: 5
if you think they can earn $11 / share this year this is nearing table-pounding territory...
It does seem a bit odd. What's the bearish narrative? A recession is coming so payrolls will be a bit smaller for a while? Companies will vibe code their own payroll systems into existence? Just a sell-off along with all companies that might be included in a software or SAAS index?
For these guys, the current price seems oddly cheap, they usually hang out in the VIP section. Even for a run of the mill firm it would still seem a fair price.
Jim
No. of Recommendations: 2
From Google Search AI Summary.
Key Components of the Bear Case:
Macroeconomic Sensitivity & Employment Slowdown: ADP's revenue is heavily tied to headcount growth ("pays-per-control"). A softening labor market, hiring freezes, or widespread layoffs—particularly in the small- and mid-sized business (SMB) segments—directly reduce payroll volumes and, consequently, ADP's revenue.
Intense Competition from SaaS Rivals: Cloud-native competitors like Workday (enterprise), Paylocity, Paycor, and Rippling (SMB) are often considered more user-friendly, agile, and cost-effective than ADP’s more traditional, modular, and sometimes complex offerings. These rivals are successfully capturing market share in the mid-market and SMB spaces.
PEO Segment Margin Pressure: The PEO segment is facing margin compression (down 70 bps in Q2 FY26) due to rising costs for healthcare premiums and workers' compensation insurance, which are often "pass-through" costs with zero margin.
Declining "Float" Income: ADP generates substantial interest income ("float") on client funds held before payroll distribution. A pivot by the Federal Reserve to significantly lower interest rates would directly reduce this high-margin revenue stream.
Technological Disruption & Execution Risk: While ADP is rolling out its AI-powered "Lyric" platform, critics argue that integrating new technology while maintaining its massive, legacy infrastructure brings significant execution risk. Furthermore, the rapid rise of AI could disrupt entry-level HR roles, impacting ADP's client retention rates.
Slowing Growth and Premium Valuation: Analysts have pointed out that ADP's growth has moderated, with FY26 revenue forecasts sometimes landing below analyst expectations. Consequently, a "flight to quality" might not fully justify the stock's premium valuation multiple compared to faster-growing SaaS peers.
Significant Insider Selling: Reports from early 2026 indicated significant stock sales by top-ranking executives, including the CEO and President, which can signal a lack of strong conviction in the company’s near-term growth prospects.
Summary of 2026 Outlook:
As of early 2026, ADP has faced a 1-year stock price depreciation (approximately 27–30%), with analysts holding a more cautious "Hold" sentiment. The market is actively questioning the durability of ADP’s growth, particularly with "pays-per-control" growth in the US stalling and client retention experiencing a modest decline.
No. of Recommendations: 1
Paychex has been hit even harder. They are down 41% to ADP 35%. Their price charts are almost clones of each other for every period.
No. of Recommendations: 1
And the Bull case from Guggenheim
Guggenheim started coverage of Automatic Data Processing (ADP) with a Buy rating, arguing that its scale and its diversification give it competitive advantages. ADP stock rose 1.3% in late morning trading on Thursday.
The stock has underperformed the S&P 500 on fears that AI will replace workers and directly impact headcount-based software vendors. "However, we think this fear is overblown in this case since payroll demands deterministic outcomes, which AI cannot provide, and ADP's compliance infrastructure, shared risk model, and revenue diversification beyond headcount create meaningful insulation," analyst Jacob Smith wrote in a note to clients.
He argued that "payroll requires deterministic outcomes, whereas AI produces probabilistic ones."
Other advantages include ADP's 1.1M customers in the U.S., its compliance infrastructure spanning 12,000 tax jurisdictions, and its "last-mile ecosystem" that integrates with 8,000 banks and tax authorities worldwide, he said. Furthermore, the analyst sees ADP's launch of Lyric HCM as a strategic expansion opportunity into the large enterprise HCM market, challenging Workday (WDAY), SAP (SAP), and Oracle (ORCL)
Guggenheim sets a $270 price target.
No. of Recommendations: 16
I have been a long-time shareholder of both ADP and PAYX...and have watched as both stock prices have pulled back sharply in the last year. The last time there was this much "controversy" about the business models was about nine years ago when Bill Ackman and Leo Cooperman faced off about ADP. Bill Ackman’s Pershing Square launched a proxy fight against ADP, aiming for board seats and operational changes. Lee Cooperman, a former ADP board member, strongly opposed the move, labeling Ackman’s campaign "disgraceful," "foolish," and "not merited by the facts". Cooperman supported ADP management, which ultimately prevailed in the dispute.
A week or so ago, Paychex reported its latest fiscal results with the business fundamentals remaining solid. I wrote this note...you could easily substitute ADP for Paychex ;-)
For much of the past year, the software sector has been at the center of a complex market debate. As generative AI continues to evolve, a "one-size-fits-all" narrative has taken hold: if AI can automate human tasks, then software companies must surely be at risk. This perspective has created a noticeable disconnect between the market price of many HI-quality software companies, which have pulled back sharply, and their underlying business value.
A good example is Paychex, which reported strong financial results last week which increased its underlying business value even as the stock price has been adversely impacted by the AI narrative. Rather than being disrupted by new technology, established leaders are finding ways to integrate AI to reinforce their existing advantages, creating a more resilient service model than the "pure play" AI startups can currently offer.
The Value of Accountability
The market often views payroll and human resources (HR) as administrative tasks ripe for total automation. But for a business owner, these aren't just data entry problems, they are compliance and liability challenges. This is where the "accountability gap" appears.
While many new AI tools operate under "use at your own risk" terms, Paychex provides a comprehensive service that includes financial indemnification and human-verified legal expertise. In an environment where dozens of new state workplace laws can take effect in a single day, an autonomous bot lacks the contextual judgment to navigate such high-stakes complexity. By blending AI efficiency with professional oversight, Paychex offers a level of security that code alone cannot replicate.
Accuracy Built on "Gold Standard" Data
There is also a critical issue of data quality. AI is only as reliable as the information it is trained on. While general AI models are built on the vast (and often inconsistent) data of the public internet, Paychex utilizes a proprietary "gold standard" of data—millions of reconciled, penny-accurate payroll records.
This historical depth allows for more than just automation; it enables sophisticated insights. For example, Paychex’s predictive tools have helped clients reduce employee turnover by as much as 20%. For an "outsider" AI bot to offer similar results, it would first need decades of validated, industry-specific data, a hurdle that provides a significant head start to incumbents.
Stability in the Real-World Economy
One also must consider the nature of the American workforce. A large majority of Paychex’s clients are in "physical" industries—like construction and manufacturing—where roles are multifaceted and hard to automate. These aren't single-task office jobs but dynamic positions that require human adaptability.
Furthermore, there is a clear human element to HR. Research suggests that a significant portion of the workforce remains uncomfortable with entirely AI-led departments. Paychex has addressed this by using its Flex AI Assistant to handle routine queries, which frees up their human advisors to provide the high-value, strategic consulting that business owners still deeply prize. This balanced approach is reflected in Paychex’s steady client retention rate, which remains over 82%.
Strength in the Numbers
This strategic resilience was evident in Paychex’s most recent quarterly report. Total revenue grew 20% to $1.8 billion, supported by the successful integration of Paycor and an expanding client base. The company’s financial health remains a standout, with $1.8 billion in free cash flow generated so far this fiscal year and an impressive 41% return on shareholders’ equity.
Management’s confidence is further signaled by the company’s growing dividend, yielding a robust 4.8%, and a new $1 billion share repurchase program. These are not the hallmarks of a company under siege, but rather one that is successfully modernizing its business model for a new era while rewarding shareholders with a growing dividend and substantial share repurchase program.
The Bottom Line
The current "Software Disconnect" has created a compelling opportunity to look past the AI hype and focus on fundamentals. While the market continues to weigh the potential for AI disruption, we believe the ultimate winners will be those companies which combine the speed and integration of AI with the reliability of a proven business model. In a world of increasing automation, the value of a trusted, accountable partner has never been higher.
No. of Recommendations: 1
I bought some more today at $190.88
Thanks for posting the bear case, here are my thoughts
1. Macroeconomic Sensitivity & Employment Slowdown --> Transient, they have proven they can make money in all sorts of macro environments. The stock only dropped about 20% during the 2008 financial crisis as an example.
2. Intense Competition from SaaS Rivals --> I am confident in their moat, but something to watch.
3. PEO Segment Margin Pressure --> Something to watch, but I don't think this is recent change in their business
4. Declining "Float" Income --> I don't think its declining, the forecast is for $1.3B in Float revenue this year up from $1.2B last year.
5. Technological Disruption & Execution Risk --> I think this is what is driving the decline, and as you can probably tell I am not that concerned in the mid term (next 3 years)
6. Slowing Growth and Premium Valuation --> Valuation looks attractive, growth is steady.
7. Significant Insider Selling --> Not an issue, no recent sells at current levels.
tecmo
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