This May Be the Start of Paychex Stock's Bearish Run

Why PAYX investors may want to consider selling out

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The shares of Paychex, Inc. (NASDAQ:PAYX) have been trending lower, despite the company's board of directors declaring a regular quarterly dividend of 66 cents per share last week, which will be payable on Feb. 24 to shareholders as of Jan. 31. 

The equity was last seen testing a familiar floor at the $123 level, as it pulls pack from a Dec. 30, all-time high of $138.96. Plus, the shares have been slipping further below the 60-day moving average over the last couple of days. Year-over-year, PAYX remains up 39.8%.

PAYX 60 Day

Traders have been more bearish than usual over the last two weeks. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), PAYX sports a 10-day put/call volume ratio of 5.52, which sits higher than 97% of readings from the past year.

The brokerage bunch echoes that pessimism. Of the 16 analysts in coverage, two say "sell" or worse, while 12 carry a "hold" rating, and the other two call PAYX a "strong buy."  

From a fundamental point of view, the company’s valuation has far outgrown its own output. Paychex has generated consistent top and bottom-line growth, increasing its revenues and net income by 24% and 31%, respectively, since 2018. However, the stock has already priced in multiple years of growth.

Paychex stock currently trades at a price-earnings ratio of 34.95, and a price-sales ratio of 10.70, which are high considering the company's earnings and revenue projections. Overall, PAYX may continue to fall, as it looks to reach a more reasonable valuation.

 

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