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Is Paychex (PAYX) a Stock That Investors Should Hold on to?
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A prudent investment decision means buying stocks that offer solid prospects and selling those that appear risky. Again, at times it is rational to hold on to certain stocks that have enough potential but are weighed down by tough market conditions. Here, we take into account Paychex Inc. (PAYX - Free Report) , a company with an expected long-term EPS growth rate of 8.88% and potential to perform well in the long run.
Notably, Paychex outperformed the Zacks categorized Outsourcing industry in the last one year. The company gained 10.6% in the last one year compared with the Outsourcing industry’s loss of 0.9%.
We believe, this rally has been driven by Paychex’s strong fundamentals and solid growth strategies.
Why Should You Hold the Stock?
The Zacks Rank #3 (Hold) company showed an uptrend in terms of earnings, as is evident from its earnings beat in all the trailing four quarters, marking an average positive earnings surprise of 2.23%.
If we look into Paychex’s past performance, we note that its third-quarter fiscal 2017 earnings exceeded the Zacks Consensus Estimate while revenues missed the same. The company reported non-GAAP earnings per share of 55 cents, which beat the Zacks Consensus Estimate by a penny and grew 10% year over year primarily on the back of higher revenues.
Notably, the year-over-year improvement on both counts was encouraging. Moreover, the company’s reiterated outlook for fiscal 2017 is praiseworthy, indicating that it is relatively well placed despite current macroeconomic sluggishness.
Furthermore, we are optimistic about Paychex’s investments in product development and focus on building its sales force to support revenue growth. We also believe that the company’s expansion initiatives such as joint ventures and acquisitions support the long-term growth strategy.
Product launches are likely to be other growth drivers. Also, Paychex’s focus on small and mid-sized businesses looking for HR solutions could provide growth opportunities.
Revenue growth is an important metric for any company as it is a vital part of growth projections and instrumental in strategic decision-making. Also, revenue growth is essential to justify the fixed and variable expenses incurred to operate a business. Paychex has grown significantly over the years by providing industry-leading service and technology solutions to its clients and their employees. Its solid business model, diversified products and services, and strategic acquisitions have boosted top-line growth. Notably, revenues grew at a four-year (2012-2016) CAGR of 7.3%. Higher revenues will expand margins and increase profitability in the long run.
Risks Remain
Paychex is affected by weak economic conditions as employment levels tend to decline and interest rates might become more volatile. Lower or falling interest rates generally result in a decline in Paychex’s float income. These conditions may have an adverse effect on Paychex’s business owing to lower transaction volumes or loss of clients. Potential clients tend to lower their overall spending on payroll and other outsourcing services. We believe that this will put pressure on Paychex, thereby lowering revenue growth potential.
Moreover, competition from Automatic Data Processing (ADP - Free Report) and Insperity (NSP - Free Report) remain the primary concerns.
Broadcom has a long-term expected earnings growth rate of 13.6%.
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While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public. Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Click here for Zacks' private trades >>
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Is Paychex (PAYX) a Stock That Investors Should Hold on to?
A prudent investment decision means buying stocks that offer solid prospects and selling those that appear risky. Again, at times it is rational to hold on to certain stocks that have enough potential but are weighed down by tough market conditions. Here, we take into account Paychex Inc. (PAYX - Free Report) , a company with an expected long-term EPS growth rate of 8.88% and potential to perform well in the long run.
Notably, Paychex outperformed the Zacks categorized Outsourcing industry in the last one year. The company gained 10.6% in the last one year compared with the Outsourcing industry’s loss of 0.9%.
We believe, this rally has been driven by Paychex’s strong fundamentals and solid growth strategies.
Why Should You Hold the Stock?
The Zacks Rank #3 (Hold) company showed an uptrend in terms of earnings, as is evident from its earnings beat in all the trailing four quarters, marking an average positive earnings surprise of 2.23%.
If we look into Paychex’s past performance, we note that its third-quarter fiscal 2017 earnings exceeded the Zacks Consensus Estimate while revenues missed the same. The company reported non-GAAP earnings per share of 55 cents, which beat the Zacks Consensus Estimate by a penny and grew 10% year over year primarily on the back of higher revenues.
Notably, the year-over-year improvement on both counts was encouraging. Moreover, the company’s reiterated outlook for fiscal 2017 is praiseworthy, indicating that it is relatively well placed despite current macroeconomic sluggishness.
Furthermore, we are optimistic about Paychex’s investments in product development and focus on building its sales force to support revenue growth. We also believe that the company’s expansion initiatives such as joint ventures and acquisitions support the long-term growth strategy.
Product launches are likely to be other growth drivers. Also, Paychex’s focus on small and mid-sized businesses looking for HR solutions could provide growth opportunities.
Revenue growth is an important metric for any company as it is a vital part of growth projections and instrumental in strategic decision-making. Also, revenue growth is essential to justify the fixed and variable expenses incurred to operate a business. Paychex has grown significantly over the years by providing industry-leading service and technology solutions to its clients and their employees. Its solid business model, diversified products and services, and strategic acquisitions have boosted top-line growth. Notably, revenues grew at a four-year (2012-2016) CAGR of 7.3%. Higher revenues will expand margins and increase profitability in the long run.
Risks Remain
Paychex is affected by weak economic conditions as employment levels tend to decline and interest rates might become more volatile. Lower or falling interest rates generally result in a decline in Paychex’s float income. These conditions may have an adverse effect on Paychex’s business owing to lower transaction volumes or loss of clients. Potential clients tend to lower their overall spending on payroll and other outsourcing services. We believe that this will put pressure on Paychex, thereby lowering revenue growth potential.
Moreover, competition from Automatic Data Processing (ADP - Free Report) and Insperity (NSP - Free Report) remain the primary concerns.
A better-ranked stock in the broader technology sector is Broadcom Limited (AVGO - Free Report) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Broadcom has a long-term expected earnings growth rate of 13.6%.
Zacks’ Best Private Investment Ideas
While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public. Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Click here for Zacks' private trades >>