Four flat years, and twenty-six percent on capital

A. O. Smith has sold the same $3.8bn of water heaters for four years, earned the same $730m or so of operating profit on them, turned all of its net income into cash and retired a tenth of its shares. The market has marked it down 28% in a year. This piece is about a business that has stopped growing being priced as if it will shrink — and about a number in our own output that would have overstated it.

September 12 · 11 min read

Forty percent on its capital, and four percent of earnings growth

Paychex earns about forty percent on the capital it employs, and its share count has barely moved — so none of the earnings growth is arithmetic. There is just not much of it. Revenue compounds at eight to nine percent, earnings at four, and this piece is about holding both of those facts at once.

September 6 · 8 min read