4-Star Stocks Poised to Pop: Paychex

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, payroll and personnel services provider Paychex (NAS: PAYX) has earned a respected four-star ranking.

With that in mind, let's take a closer look at Paychex's business and see what CAPS investors are saying about the stock right now.

Paychex facts

Headquarters (Founded)

Rochester, N.Y. (1971)

Market Cap

$9.5 billion

Industry

Data processing and outsourced services

Trailing-12-Month Revenue

$2.13 billion

Management

Founder/Chairman Thomas Golisano

CEO Martin Mucci

Return on Equity (Average, Past 3 Years)

36.4%

Cash/Debt

$485.1 million / $0

Dividend Yield

4.7%

Competitors

ADP (NAS: ADP)

Insperity (NYS: NSP)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 96% of the 1,493 members who have rated Paychex believe the stock will outperform the S%26P 500 going forward. These bulls include jjutte and All-Star InvestWhatWorks, who is ranked in the top 15% of our community. 

Just last month, jjute tapped Paychex as an ideal turnaround play:

Nice dividend with founder still serving as Chairman of Board and great long term record and some good potential growth businesses. Earnings growth will have significant leverage when growth in economy resumes while downside in earnings is limited due to nature of pretty consistent and reliable business.

In fact, Paychex boasts a rather robust three-year average operating margin of 37.5%. That's higher than main rival ADP (19.7%), as well as other business service plays such as Insperity (2.4%) and TeleTech Holdings (NAS: TTEC) (8.7%).

CAPS All-Star InvestWhatWorks elaborates on the bull case:

When more people are employed, there are more potential customers for Paychex. So when unemployment improves, so will Paychex's business.

Likewise, when interest rates rise, so will Paychex. In addition to the fees Paychex charges for all of their various services, Paychex also earns interest on the money they hold for their clients. ...

But as you wait for those two factors to improve, Paychex pays shareholders a very nice 4.55% dividend yield (at the time I am writing this) to just hold the stock and wait. Not a bad deal. Not a bad deal at all.

Paychex itself is not just sitting on its hands until these economic improvements occur, however. They are adding new clients, expanding their business offerings and acquiring other companies.

If you believe that we have seen the worst in terms of unemployment, then Paychex is a great bet on that. Reinvest that dividend back into Paychex. When the US economy improves substantially, you will be in a great position to take advantage of those economic improvements with Paychex.

What do you think about Paychex, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!

Interested in another easy way to trackPaychex?Add it to your watchlist.

At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Paychex and ADP. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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