Is Wall Street Underestimating Paychex Stock’s Potential?

We think Paychex (PAYX) stock could be a good value buy. It is currently trading at a 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 37% 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 the S&P 500 median.

The stock may not reflect it yet, but here is what’s going well for the company. Paychex’s strong margins, at 41.7% in Q2 FY26, are sustained by an 83% client retention rate, customized Flex plan pricing, and AI-driven efficiencies. While organic expansion is challenged by SME competition and sluggish small business job growth, the Paycor acquisition and price realization propelled Q2 FY26 revenue up 18%. An 8.7% year-to-date stock decline and “Underweight” ratings reflect market rotation and cautious small business outlooks, contributing to the 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 margin collapse in the last 12 months.
• Modest Valuation: Despite encouraging fundamentals, PAYX stock trades at a PE multiple of 22.2

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, and 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. Accenture (ACN)
2. Humana (HUM)
3. Broadridge Financial Solutions (BR)

We chose these stocks using the following criteria:

1. Greater than $2 billion in market cap
2. Meaningfully below 1Y high
3. Current P/S < last few years’ 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 as 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 Gives You Safer Smarter Growth

Markets move differently, but a mix of assets smooths volatility. A multi-asset portfolio keeps you invested and reduces the impact of sharp drops in any single area.

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’s 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