On the four Ms, Automatic Data Processing earns 99 for management and 83 for moat. The management score rests on a return on invested capital of 23.9% and a gross margin of 48.2% — figures that describe a business turning capital into profit efficiently. Debt sits at 0.87x equity.
The price anchors are built on deliberately conservative assumptions. Growth is modelled at 7.9% a year, the rate measured from the filings. The exit multiple assumed is 15.8x. That produces an intrinsic value of $91.51, a 10-CAP price of $127.21 and a payback time price of $145.49, with the value zone set at the highest of the three, $145.49. Today's price of $263.96 is 81% above it.
A wonderful business at the wrong price is still the wrong price. Automatic Data Processing scores well on the business and poorly on the entry point, which is the most common shape in a long bull market.
| Price | $263.96 |
| Market cap | $105.5B |
| P/E ratio | 24.1x |
| Return on invested capital | 23.9% |
| Gross margin | 48.2% |
| Debt to equity | 0.87x |
| Free cash flow yield | 5.9% |
| Growth rate used | 7.9% |
| Growth rate measured | 8.0% |
| Exit multiple assumed | 15.8x |
| Company | Moat | Buy price |
| Datadog Inc. (DDOG) | 89 | $50.46 |
| Cadence Design Systems (CDNS) | 97 | $97.51 |
| Adobe Inc. (ADBE) | 83 | $402.62 |
| Applovin Corp (APP) | 96 | $210.61 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of Automatic Data Processing rather than accepting ours.