Roper Technologies Inc. (ROP)

Transformed from hardware to software. Serial acquired of vertical market software companies. Ostensibly mission-critical with sticky, recurring revenues. 

His firm sold in the last couple of weeks. AI is a real threat to its entire business model. Value trap.

Enterprise software companies are slumping and the market will pay lower PEs for them. They just reported a mix quarter and the stock was hit hard. Guidance was also weak. 

A lot of its software is in the healthcare industry. Until they prove that they have a product that AI can't touch, the stock will languish.

ROP has been roughly sideways for the last few years now. Up until 2023, top-line growth hasn't been the most inspiring but it looks like the company is getting back to a more consistent 10% range of revenue growth and roughly 9% EPS growth. Fundamentally it is a solid company as well with good margins and return metrics. We think the 'issue' with ROPis just that it is in a bit of a grey zone between valuation and growth. At 25X forward earnings, it is not really expensive given the fundamentals but also not a 'steal' at these levels. Meanwhile, the growth rate is probably just low enough to not really get investors excited about it either. We like the name and think it is fine, but probably just needs a bit of a catalyst to get investors caring about it again.
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Recent results were pretty good, and announced a new acquisition. Shares trading sideways, very good long-term compounder and this should continue.

Transitioning from hardware, now almost purely in software. Serial acquirers, only now is it easier to find deals at more reasonable valuations. High WACC is more a function of it being a small company, with market cap only ~$60B (high interest rates impact small companies the most).

Over time, ROIC will drive higher than WACC as it gets larger and continues to execute.

Recent all time high of the stock good for shareholders. American version of Constellation Software (Canada). Dividend has grown at ~ 14% annually the past 10 years. M&A skill very good - usually pay cash and is friendly. Excellent growth prospects for the long term investor. 

He has admired them for a long time. They are an aggregator of smaller niche profitable businesses. This generates a lot of cash and is well diversified. They have evolved into more digital technology companies and has adapted well. He would scale into a buy as it is pretty expensive here.