Since August, the shares of Paychex Inc. (NASDAQ: PAYX) have dropped from $45 to $33.45. For the most part, the company provides a variety of payroll and human resource services for small and medium size businesses. However, with the slowing economy, investors are getting jittery.
Despite this, Paychex had a reasonable Q3. Revenues increased 9.7% to $532.2 million and earnings were up 13% to $142.5 million, or $0.39 per share.
While its customers are experiencing pain, the fact remains that they still need the kinds of services that Paychex provides. Simply put, the company has built a solid recurring revenue generator based on a competitive offering, which has kept up with players like ADP (NYSE: ADP). Keep in mind that Paychex has achieved its 18th consecutive year of record revenue and earnings growth.
Yes, Paychex admits that things are tougher (that is, with the macroeconomic environment). For example, the selling season has been difficult and there's been an uptick in business failures, especially in the construction and mortgage sectors.
Although, Paychex still has a fairly diversified customer base, which counts about 570,000 clients. And based on prior economic downturns, the company has been able to deal with the problems and grow through them.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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