Has Paychex Stock Quietly Become a Value Opportunity?

We think Paychex (PAYX) stock could be a good value buy. It is currently trading lower than average valuation, and has reasonable revenue growth and strong margins to go with its modest valuation.

Buying stocks with low valuations or trading well below their peaks but maintaining strong margins allows investors to capture mean reversion and valuation re-rating potential. The downside risk is potentially less because high-margin businesses can sustain earnings and recover faster when sentiment or market conditions improve

What Is Happening With PAYX

PAYX stock is now 34% cheaper based on its P/S (Price-to-Sales) ratio compared to 1 year ago, and also trades at a P/E (Price-to-Earnings) ratio that is below S&P 500 median.

The stock may not reflect it yet, but here is what’s going well for the company. Paychex maintains strong margins from an 83% client retention rate and customized Flex plan pricing, further aided by disciplined cost management and AI capabilities. Q2 FY2026 revenue rose 18%, boosted by the Paycor acquisition and price realization, but organic growth faces SME competition. FY2026 revenue guidance of 16.5-18.5% is slightly below prior analyst estimates. The -5.34% YTD stock decline, new 52-week low, and “Underweight” analyst ratings reflect this competitive pressure and growth concerns, leading to the current discounted valuation.

PAYX Has Strong Fundamentals

• Reasonable Revenue Growth: 12.4% LTM and 7.9% last 3 year average.
• Strong Margin: Nearly 39.7% 3-year average operating margin.
• No Major Margin Shock: Paychex has avoided any large large margin collapse in the last 12 months.
• Modest Valuation: Despite encouraging fundamentals, PAYX stock trades at a PE multiple of 23.4

Below is a quick comparison of PAYX fundamentals with S&P medians.

*LTM: Last Twelve Months

But What Is The Risk Involved?

While PAYX stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. Paycom (PAYX) showed some serious dips in past crises. It dropped about 51% during the Dot-Com Bubble and 53% in the Global Financial Crisis. The 2018 correction was milder but still a near 17% pullback. Covid slammed it down 44%, and the recent inflation shock caused a 23% drop. The stock has solid fundamentals, but these numbers remind us that even strong companies can take big hits when the market turns. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read PAYX Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

For more details and our view, see Buy or Sell PAYX Stock.

Stocks Like PAYX

Not ready to act on PAYX? Consider these alternatives:

1. Adobe (ADBE)
2. Humana (HUM)
3. Lululemon Athletica (LULU)

We chose these stocks using the following criteria:

1. Greater than $2 Bil in market cap
2. Meaningfully below 1Y high
3. Current P/S < last few year average
4. Strong operating margin
5. P/E ratio below S&P 500 median

A portfolio of stocks with the criteria above would have performed has follows since 12/31/2016:

• Average 6-month and 12-month forward returns of 12.7% and 25.8% respectively
• Win rate (percentage of picks returning positive) of > 70% for both 6-month and 12-month periods
• Strategy consistent across market cycles

A Multi Asset Portfolio Beats Picking Stocks Alone

Individual stocks can soar or tank but multi asset exposure steadies the ride. A spread out portfolio captures upside while limiting the damage from any one market.

The asset allocation framework of Trefis’ Boston-based, wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’ strategy now includes Trefis High Quality Portfolio, which has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices