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Barbarian At The Gate: Paychex (PAYX)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Paychex (PAYX) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Paychex as such a stock due to the following factors:

  • PAYX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $87.2 million.
  • PAYX has traded 197,153 shares today.
  • PAYX traded in a range 240.6% of the normal price range with a price range of $1.57.
  • PAYX traded above its daily resistance level (quality: 530 days, meaning that the stock is crossing a resistance level set by the last 530 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on PAYX:

Paychex, Inc., together with its subsidiaries, provides payroll, human resource, insurance, and benefits outsourcing solutions for small to medium-sized businesses in the United States and Germany. The stock currently has a dividend yield of 3.2%. PAYX has a PE ratio of 27.4. Currently there is 1 analyst that rates Paychex a buy, 3 analysts rate it a sell, and 14 rate it a hold.

The average volume for Paychex has been 1.9 million shares per day over the past 30 days. Paychex has a market cap of $15.8 billion and is part of the services sector and diversified services industry. The stock has a beta of 0.96 and a short float of 6.8% with 11.08 days to cover. Shares are up 39.6% year to date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Paychex as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, good cash flow from operations, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 22.6%. Since the same quarter one year prior, revenues slightly increased by 5.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The gross profit margin for PAYCHEX INC is currently very high, coming in at 76.92%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 26.78% is above that of the industry average.
  • Net operating cash flow has increased to $266.70 million or 22.50% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -14.74%.
  • PAYCHEX INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, PAYCHEX INC increased its bottom line by earning $1.57 versus $1.51 in the prior year. This year, the market expects an improvement in earnings ($1.69 versus $1.57).
  • The net income growth from the same quarter one year ago has exceeded that of the IT Services industry average, but is less than that of the S&P 500. The net income increased by 6.3% when compared to the same quarter one year prior, going from $153.10 million to $162.80 million.

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