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 $88.1 million.
  • PAYX has traded 379,933 shares today.
  • PAYX traded in a range 216.4% of the normal price range with a price range of $0.95.
  • PAYX traded above its daily resistance level (quality: 4 days, meaning that the stock is crossing a resistance level set by the last 4 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. 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 3.6%. PAYX has a PE ratio of 24.8. Currently there is 1 analyst that rates Paychex a buy, 3 analysts rate it a sell, and 12 rate it a hold.

The average volume for Paychex has been 1.8 million shares per day over the past 30 days. Paychex has a market cap of $15.4 billion and is part of the services sector and diversified services industry. The stock has a beta of 0.83 and a short float of 4.7% with 8.70 days to cover. Shares are down 6.8% year-to-date as of the close of trading on Tuesday.

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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, growth in earnings per share, increase in net income, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 12.3%. Since the same quarter one year prior, revenues slightly increased by 9.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • PAYCHEX INC has improved earnings per share by 17.6% in the most recent quarter compared to the same quarter a year ago. 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 $1.71 versus $1.57 in the prior year. This year, the market expects an improvement in earnings ($1.84 versus $1.71).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the IT Services industry average. The net income increased by 18.1% when compared to the same quarter one year prior, going from $123.50 million to $145.90 million.
  • Net operating cash flow has significantly increased by 154.13% to $175.10 million when compared to the same quarter last year. In addition, PAYCHEX INC has also vastly surpassed the industry average cash flow growth rate of -2.76%.
  • PAYX has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.17 is very weak and demonstrates a lack of ability to pay short-term obligations.

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