Buy The Dip As Paychex Drops 10%?
Paychex (NASDAQ:PAYX) fell by nearly 10% in Wednesday’s trading after the payroll processing company posted its Q4 FY’25 results (fiscal year ends in May). While revenue rose 10% year-over-year to $1.43 billion and adjusted earnings rose 6% to $1.19 per share, the company’s FY’26 guidance appeared to disappoint the markets. Paychex expects revenue to grow by 16.5% to 18.5% next year, slightly below consensus expectations. The company is also facing some headwinds, including integration challenges related to the recent acquisition of Paycor, which closed in April, and higher interest expenses stemming from the debt used to finance the deal. Additionally, the expiration of the Employee Retention Tax Credit (ERTC) program has weighed on revenue growth to an extent. The ERTC was a Covid-19 era tax incentive that drove up demand for payroll tax credit services, as companies needed help with claiming the credit. Despite some headwinds, the Paycor deal offers meaningful long-term benefits. It expands Paychex’s reach beyond its core base of small and mid-sized businesses customers, adding a roster of bigger clients. Over time, cost and revenue synergies are also expected to be realized, helping to improve overall profitability.
Image by Steve Buissinne from Pixabay
That said, we believe there are concerns with PAYX stock, with its current valuation looking a bit high. We arrive at our conclusion by comparing the current valuation of PAYX stock with its operating performance over the recent years as well as its current and historical financial condition. Our analysis of Paychex along key parameters of Growth, Profitability, Financial Stability, and Downturn Resilience shows that the company has a strong operating performance and financial condition, as detailed below. That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception.
How Does Paychex’s Valuation Look vs. The S&P 500?
Going by what you pay per dollar of sales or profit, PAYX stock looks expensive compared to the broader market.
• Paychex has a price-to-sales (P/S) ratio of 10.1 vs. a figure of 3.1 for the S&P 500
• Additionally, the company’s price-to-free cash flow (P/FCF) ratio is 34.3 compared to 20.9 for S&P 500
• And, it has a price-to-earnings (P/E) ratio of 31.6 vs. the benchmark’s 26.9
How Have Paychex’s Revenues Grown Over Recent Years?
Paychex’s Revenues have grown marginally over recent years.
• Paychex has seen its top line grow at an average rate of 6.6% over the last 3 years (vs. increase of 5.5% for S&P 500)
• Its revenues have grown 4.3% from $5.2 Bil to $5.4 Bil in the last 12 months (vs. growth of 5.5% for S&P 500)
• Also, its quarterly revenues grew 4.8% to $1.5 Bil in the most recent quarter from $1.4 Bil a year ago (vs. 4.8% improvement for S&P 500)
How Profitable Is Paychex?
Paychex’s profit margins are considerably higher than most companies in the Trefis coverage universe.
• Paychex’s Operating Income over the last four quarters was $2.3 Bil, which represents a considerably high Operating Margin of 41.5%
• Paychex’s Operating Cash Flow (OCF) over this period was $1.8 Bil, pointing to a high OCF Margin of 32.7% (vs. 14.9% for S&P 500)
• For the last four-quarter period, Paychex’s Net Income was $1.7 Bil – indicating a considerably high Net Income Margin of 32.0% (vs. 11.6% for S&P 500)
Does Paychex Look Financially Stable?
Paychex’s balance sheet looks very strong.
• Paychex’s Debt figure was $864 Mil at the end of the most recent quarter, while its market capitalization is $50 Bil (as of 6/25/2025). This implies a very strong Debt-to-Equity Ratio of 1.6% (vs. 19.4% for S&P 500). [Note: A low Debt-to-Equity Ratio is desirable]
• Cash (including cash equivalents) makes up $1.6 Bil of the $11 Bil in Total Assets for Paychex. This yields a strong Cash-to-Assets Ratio of 14.3%
How Resilient Is PAYX Stock During A Downturn?
PAYX stock has fared slightly worse the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on PAYX stock? Our dashboard How Low Can Paychex Stock Go In A Market Crash? has a detailed analysis of how the stock performed during and after previous market crashes.
Inflation Shock (2022)
• PAYX stock fell 25.4% from a high of $141.23 on 6 April 2022 to $105.37 on 26 April 2023, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 14 October 2024
• Since then, the stock has increased to a high of $159.78 on 8 June 2025 and currently trades at around $140
Covid Pandemic (2020)
• PAYX stock fell 44.2% from a high of $90.23 on 20 February 2020 to $50.39 on 23 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 9 November 2020
Global Financial Crisis (2008)
• PAYX stock fell 55.9% from a high of $46.31 on 8 August 2007 to $20.43 on 9 March 2009, vs. a peak-to-trough decline of 56.8% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 31 October 2014
Putting All The Pieces Together: What It Means For PAYX Stock
In summary, Paychex stock has strong fundamentals, with reasonable growth, strong profitability and financial stability. That said, the company’s high valuation and slightly weak downturn resilience should give investors some pause. The rich valuation of PAYX stock limits its upside potential in the near-to-mid term. As an alternative, the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.
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