Paychex Inc. Quarterly Valuation – November 2014 $PAYX

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Paychex Inc. is suitable for the Enterprising Investor but not the Defensive Investor, who is concerned with the low current ratio, lack of earnings growth over the last ten years and the high PEmg and PB ratios. The Enterprising Investor’s only issue with the company is the low current ratio. As a result, the Enterprising Investor should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $1.42 in 2011 to an estimated $1.67 for 2015. This demonstrated growth does not support the market’s implied estimate of 9.48%. In fact, the demonstrated growth over the last several years is only 3.6% per year. The company would have to see a significant change in its level of growth in order to meet the market’s estimated growth level. As a result, the ModernGraham valuation model returns an estimate of intrinsic value below the market price at this time, and the company appears to be overvalued by the market.

Be sure to check out previous ModernGraham valuations of Paychex Inc. for better perspective.

Read the full valuation on Seeking Alpha!

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