After hitting the peak of $ 118 last month, Paychex actions (NASDAQ: PAYX) has seen a downtrend. The stock rallied after the annual results were announced in June, as strong FY2021 performance coupled with expectations of further revenue and earnings expansion boosted investor confidence. However, Paychex stock is currently trading at a P / E multiple of 39, which is well above historical numbers. Comparing the historic annual revenue growth rate of 9% to 7% for fiscal 2022, Trefis believes investor optimism is overdone. We highlight the key factors that lead Paychex valuation including revenue, margins, valuation multiple, and competitive comparison with peers in an interactive dashboard analysis.
[Updated 8/11/2021] – What is driving the rally in Paychex Stock?
Actions of Paychex (NASDAQ: PAYX) have gained 30% from February 2020 levels despite a downward trend seen in the travel and tourism industry. In particular, employment in the leisure and hospitality sector remains 10.3% below the levels of February 2020. The resumption of the Paychex share is largely due to the increase in customer base and improvement constant customer retention rate. According to recently filed documents, the company reported a customer base of 710,000, or about 8.8% of the total of 8 million employer businesses in the United States. a boon for shareholders. However, the stock appears overvalued given historical trends in valuation multiples (P / E) and potential profit numbers in the coming years. Trefis highlights historical trends in income, earnings, stock prices and valuation multiples in an interactive dashboard analysis, Paychex valuation.
An overview of the main financial and operational indicators
Paychex’s revenue grew at an annual rate of 9%, from $ 3.2 billion in fiscal 2017 to $ 4.0 billion in fiscal 2020. The two operating segments of the company, Management Solutions and PEO services, recorded average revenue growth of 3.4% and 33%, respectively, over the same period. In addition, the total customer base increased from 605,000 in 2017 to 680,000 in 2020, contributing to an increase in the number of employees on construction sites and other services such as health insurance and pension plans.
The Management Solutions segment provides key human capital management services including payroll processing, tax administration, HR solutions and pension services. The PEO (professional employers’ organization) is a complete employment administration solution where employees working for a client are co-employed by Paychex and the client (site workers).
Thus, the net profit recorded an annual increase of 10%, from $ 817 million in fiscal 2017 to $ 1 billion in fiscal 2021, with margins remaining fairly stable. The company has also systematically returned capital to shareholders in the form of dividend payments. The annual dividend per share has increased at an annual rate of 10%, from $ 1.84 in 2017 to $ 2.48 in 2020.
Is action a good choice?
According to the analysts presentation, Paychex’s revenue for fiscal 2022 is expected to increase by 7% with relatively stable net margins. Considering the year-end stock price numbers, the P / E multiple fell from 29.7 in 2017 to 31.3 in 2020. With earnings per share of $ 3.05 for the year 2021 and a current market price of $ 115, the current valuation multiple (P / E) of 37 is much higher than historical numbers. Additionally, the current 2% dividend yield is low assuming an annual dividend payout of $ 2.64.
Is there a better investment than Paychex? Paychex Stock Comparison With Peers summarizes how PAYX compares to its peers on the metrics that matter. You may find other useful comparisons on peer-to-peer comparisons.
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