Paychex: Steady But Unspectacular Returns Likely

Summary

• Paychex has a great business foundation with industry-leading margins, low capital requirements and a product with high switching costs.
• Revenue growth in the mid-to-high single digits seems sustainable.
• Despite rising customer retention, Paychex's customer satisfaction scores are worse than many rivals, threatening its competitive position.
• A more balanced shareholder capital return policy might serve the company better.
• My valuation projects market-equalling returns over the next decade, making Paychex stock a hold rather than a buy due to no margin of safety.

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Paychex (NASDAQ:PAYX), a leader in the Human Capital Management software and payroll space in the United States, was founded in 1971 by Thomas Golisano, and went public in 1983. It has been a monster compounder over the years: since 1994 when Seeking Alpha’s

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.