Another good recommendation for PAYX from the Motley Fool today. Outsourcing is getting more and more popular every day, as it makes so much sense to send out tasks and services that others can do better, faster and cheaper.
The same trend has boosted SLR, who does outsourced manufacturing, design, shipping, and billing, SYKE, who does outsourced support service and, in a way, NITE, who does outsourced over the counter stock market making for brokerage houses.
Glad I'm long the PAYX calls but wish I had bought more of them. Compared to most, they are a bargain.
-----------------------------------------------
"Continuing its track record of strong earnings and revenue growth, payroll processor Paychex (Nasdaq:PAYX - news) released strong fiscal Q3 earnings per share of $0.22, up from $0.16 last year. As this number beat the First Call consensus estimate of $0.20 per share, investors bid the shares up $2 9/16 to $49 3/8 at midday.
So the thought of investing in a company that processes your paycheck doesn't sound too interesting? Taking a peak at the company's financial performance might change your mind. Paychex is a cash machine. In fiscal 1998, the company had a net margin of 22.4%. That means that for every dollar of revenue created, the company earned over $0.22. To put that in perspective, Coca-Cola (NYSE:KO - news) only had net margins of 18.8% in 1998!
Paychex has achieved its success by catering to the needs of the booming small and mid-size business sector, those with 100 or fewer employees. In addition to providing payroll services, the company offers human resource services like 401(k) recordkeeping and professional employer services that enable the outsourcing of human resource functions. Even after torrid growth this past decade, the company serves less than 6% of the roughly 5 million full-time employers in the nation.
All signs indicate that Paychex is well positioned to continue its growth. Governmental employment regulations are continually becoming more demanding and an increasing number of companies are outsourcing non-core functions like payroll and human resources.
Using a traditional valuation tool like the price/earnings (P/E) ratio, Paychex looks expensive at 54x calendar 1999 earnings estimates. However, considering the company's superior business model and strong long-term growth prospects (estimated at 27%), you may want to dig a little further. Relative to many of the high-priced stalwarts with projected 12%-18% growth, Paychex looks quite appealing. "
|
