Paychex Inc (PAYX, Financial), a leading provider of payroll, human capital management, and insurance solutions, experienced a daily loss of 1.09% and a 3-month gain of 12.55%. With an Earnings Per Share (EPS) (EPS) of 4.3, the question arises, is the stock Fairly Valued? This article will delve into the valuation analysis of Paychex (PAYX) to answer this critical question. So, let's get started.
A Snapshot of Paychex Inc (PAYX, Financial)
Established in 1979, Paychex Inc (PAYX) services over 740,000 clients and pays over 1 in 12 U.S. private-sector workers. Alongside its traditional payroll services, Paychex offers human capital management (HCM) solutions such as benefits administration and time and attendance software, as well as human resources outsourcing and insurance agency services. With a current stock price of $120.87 and a GF Value of $127.97, Paychex has a market cap of $43.60 billion, indicating that the stock is fairly valued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. As such, Paychex (PAYX, Financial) is believed to be fairly valued based on the GF Value calculation.
Financial Strength of Paychex
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before purchasing shares. Paychex's cash-to-debt ratio of 1.84 ranks better than 59.12% of 1042 companies in the Business Services industry. The overall financial strength of Paychex is 8 out of 10, indicating strong financial health.
Profitability and Growth of Paychex
Investing in profitable companies carries less risk. Paychex has been profitable for 10 years over the past 10 years, with an operating margin of 40.6% better than 96.73% of 1041 companies in the Business Services industry. Additionally, the 3-year average annual revenue growth rate of Paychex is 7.3%, which ranks better than 59.53% of 981 companies in the Business Services industry. The 3-year average EBITDA growth rate is 10.2%, which ranks better than 51.06% of 846 companies in the Business Services industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Paychex's ROIC is 18.52, and its WACC is 10.23.
Conclusion
In summary, the stock of Paychex (PAYX, Financial) is believed to be fairly valued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 51.06% of 846 companies in the Business Services industry. To learn more about Paychex stock, you can check out its 30-Year Financials here.
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