Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is Paychex Making Money?

Human resources outsourcing company Paychex Inc. (NASDAQ: PAYX) is benefiting from the coronavirus pandemic.

Investors think Paychex’s business could grow because of the pandemic. Mr. Market paid $92.14 for Paychex (PAYX) shares on 68 January 2021. Paychex’s share price rose from $84.81 on 6 January 2020.

I suspect investors think Paychex will grow because more employees are working from home because of coronavirus. To explain, employers will need to outsource because they have no HR people in the office. Yet their workforce is more dispersed and decentralized than ever before.

Paychex Makes Less Money

Conversely, Paychex’s revenues, profits, and income fell in 2020. To explain, Paychex (PAYX) began 2020 with quarterly revenues of $1.142 billion on 29 February.

The quarterly revenues fell to $983.70 million on 30 November 2020. Similarly, Paychex’s quarterly gross profit fell from $802.4 million on 29 February 2020 to $663.80 million on 30 November 2020.

Finally, Paychex’s quarterly operating income fell from $470.10 million on 29 February 2020 to $354.30 million on 30 November 2020. Thus, Paychex’s income and revenue fell during the pandemic.

Similarly, Stockrow estimates Paychex’s revenue growth rate fell by -6.63% in the quarter ending on 31 May 2020. The quarterly revenue growth rate fell to -6.03% on 31 August 2020 and -0.71% on 30 November 2020.

Paychex’s Business Shrank during the Pandemic

The financial numbers show Paychex’s business shrank during the pandemic. However, the business was growing again later in 2020. For example, Paychex’s revenues grew from $915 million on 31 May 2020 to $983.7 million on November 30, 2020.

Similarly, Paychex’s quarterly operating cash flow fell from $488.10 million on 29 February 2020 to $215.70 million on 30 November 2020. Thus, Paychex’s quarterly operating cash flow fell by half.

In addition, Paychex’s quarterly ending cash flow fell from $652.50 million on 29 February 2020 to -$118 million on 30 November 2020. However, Paychex’s quarterly operating cash flow rose to $1.256 billion on 31 August 2020.

Finally, Paychex’s total assets fell from $9.466 billion on 29 February 2020 to $8.615 billion on 30 November 2020. Hence, Paychex’s business is smaller now than at the beginning of the pandemic.

Does Paychex Make Money?

Interestingly, Paychex (NASDAQ: PAYX) made some money during the pandemic.

For instance, Paychex’s reported $913.10 million in cash and short-term investments on 29 February 2020. That number rose to $927.40 on November 30, 2020.

Moreover, Paychex did not report any operating losses in 2020. To elaborate, Paychex reported a quarterly operating income of $470.10 million on 29 February 2020. That number fell to $299.60 million on 31 May 2020 and $284 million on 31 August 2020. However, the quarterly operating income rose to $354.30 million on 30 November 2020.

Is Paychex Pandemic Resistant?

I think these numbers show Paychex (PAYX) could have a pandemic-resistant business.

To explain, Paychex provides services organizations need to stay in operation – even during a pandemic. Services Paychex offers include payroll services, HR services, Business insurance, Employee Benefits, and Time & Attendance records.

Organizations need to pay their employees, offer benefits and insurance, and record time during a pandemic. However, coronavirus can close the headquarters and the HR department. Hence, more organizations will need to outsource human resources to companies such as Paychex.

People working from home still need salaries, and home workers still want their health insurance. Thus Paychex can grow during a pandemic.

That could be good news for Paychex because the pandemic is worsening. For example, Worldometers estimates there were 205,824 fresh cases of coronavirus in the United States on 8 January 2020. Hence, the pandemic is growing despite the vaccines.

Is Paychex a Good Stock?

I do not consider Paychex (PAYX) worth $92.14 a share because of its revenue shrinkage.

However, Paychex has some attractive features including a 62₵ quarterly dividend last paid on 30 October 2020. Overall, Paychex offered a $2.48 annualized dividend and a dividend yield of 2.74% on 6 January 2020. Thus, I consider Paychex an attractive dividend stock.

If you are looking for a cheap financial services stock with a margin of safety, that pays a dividend. Paychex (NASDAQ: PAYX) is worth investigating.