Trading at $42.13 on February 7, 2001.
I wasn't looking to fall in love. It was just another day, like any other day. A Thursday morning, I think. I was trolling through the wires for a story to write for the day's news. The pickings were slim. I was beginning to dread the task. Would I end up with another loser like, "Finland sells shares in Sonera"? This was not the way to impress my new bosses. I needed to come up with something good.
Paychex's (Nasdaq: PAYX) third-quarter earnings report drifted onto the screen. "Paychex," I thought, "Stupid name. Sounds like a bad breakfast cereal." It had a familiar ring to it, though. It dawned on me that the Fool Portfolio, on its first day of operation, had shorted this company. "Must be a total dog," I thought, "Maybe I should check it out."
First, I found out what Paychex does. It provides payroll, human resource, and employee benefit outsourcing services for small- to medium-sized businesses. It handles tax withholding, direct payment, 401(k) deductions, and other elements of payroll processing. The business leaves a lot of money in the company's hands for a short time. Paychex collects investment returns on this "float," thus spinning its everyday business transactions into gold.
That's a great business model. There are few variables or risks, but lots of profit, for a company that executes well. Paychex, along with its elder competitor Automatic Data Processing (NYSE: ADP), have had amazingly stable businesses over the years. Paychex, as the much smaller company, has added outstanding growth to the picture. It has increased income in excess of 35% annually for nine consecutive years. Here are growth rates for the last five-and-a-half years:
1996 1997 1998 1999 2000 2001(YTD)
Revenue growth (%): 22.5 20.0 23.5 21.0 21.9 21.6
Income growth (%): 36.3 35.6 36.0 36.1 36.6 35.9
The more I looked at the company's business and financial characteristics, the more astounded I became. The company seemed perfect in every aspect. It's consistent, rapidly growing, and highly profitable. Paychex is more than just a fine company, it's an embodiment of the ideal. I felt, as I stared at my computer screen, that I was looking at something exquisite and rare. Tears came to my eyes.
My mind drifted back to a trip my family took when I was eight years old. My parents came into some money and asked us kids where we would like to go for a big family vacation. We could go anywhere in the world. I wanted to go to Disneyland or something silly like that. They decided to take us to Greece. I prepared to dread it.
When we got there, though, I saw beauty for the first time. I had seen pretty people, places, things before, but in Greece I was introduced to beauty. As I walked through the Parthenon in Athens -- back then, you could walk through and touch most of the architecture -- my heart pounded. It overwhelmed me. I felt honored to be in its presence. Though it was crumbling, it exuded the majesty and presence of a monument that was built to endure, not through a single lifetime but through tens of thousands of lifetimes. (Were it not for an explosion in 1687, the Parthenon would stand largely intact today.) It was so strong that it held me captivated in the moment.
That is the effect of beauty. It captivates. It makes you forget everything else so that you can gaze deeper into it and notice the large and small elements that compose it. Each particular element might not be the best it can be, but every part contributes to the quality of the whole. Beauty comes from the whole, not the parts. It does not depend on individual qualities, but is quality itself. That's why true beauty remains even after façades have deteriorated. I'm sure that Paychex won't maintain its persistent 36% income growth -- it can't -- but it will retain its beauty. This company has been built to endure through many lifetimes.
If you ask what I love about Paychex, I would say that I love its enduring beauty. I love its whole. If, like those pesky professors in college, you should ask me to enumerate its admirable qualities, I would growl that Aristotelian intellectual dismemberment would diminish the whole. This is a Valentine, not a catalogue.
You would be right to ask, however, why I don't own Paychex or even ADP. That is not an easy question for me to answer. The reason, I believe, is valuation. Investors have not overlooked Paychex. Since its initial public offering in 1983, Paychex has returned more than 32,000% to its shareholders -- a compound annual growth rate in excess of 43%. Peter Lynch is still kicking himself for passing on Paychex in the early 1990s.
I know how he feels. I've loved Paychex for almost a year now, but I haven't mustered the courage to approach it. The trouble with being as beautiful as Paychex is that everyone wants a piece of you, so the price for a share is high. I keep telling myself that it will come down one day, and maybe it will. Maybe then I'll be bold enough to buy it.
For now, though, I'm content just to look at it and be happy. I will not see many things in my short life that exhibit such spectacular beauty.
Brian Lund lives in Alexandria, Virginia and writes all of his articles, but especially this one, with his sweetie in mind. The Motley Fool is investors writing for investors and you can take a look at Brian's stock holdings by taking a look at his profile online.
Stocks Fools Love represents the opinion of one Fool and should in no way be taken as the opinion of either The Motley Fool, Inc. or the company in question, or as representative of anyone or anything else other than that specific Fool's thoughts.
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