2 Reasons to Avoid PAYX and 1 Stock to Buy Instead

Yahoo

23-05-2025

While the broader market has struggled with the S&P 500 down 2.4% since November 2024, Paychex has surged ahead as its stock price has climbed by 7.5% to $156.18 per share. This performance may have investors wondering how to approach the situation.
Is now the time to buy Paychex, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it's free.
Despite the momentum, we're swiping left on Paychex for now. Here are two reasons why there are better opportunities than PAYX and a stock we'd rather own.
A company's long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Paychex's 6.6% annualized revenue growth over the last three years was weak. This fell short of our benchmark for the software sector.
Forecasted revenues by Wall Street analysts signal a company's potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Paychex's revenue to rise by 6.7%, close to its 6.6% annualized growth for the past three years. This projection doesn't excite us and implies its newer products and services will not accelerate its top-line performance yet.
Paychex's business quality ultimately falls short of our standards. With its shares outperforming the market lately, the stock trades at 9.7× forward price-to-sales (or $156.18 per share). Investors with a higher risk tolerance might like the company, but we don't really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. Let us point you toward a top digital advertising platform riding the creator economy.
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