To provide a little bit of color here, the company's primary business is payroll processing -- calculating, preparing, and delivering employee payroll checks. And accordingly, the company's revenue is strongly tied to the number of clients and/or checks per client in a given period.
The strong results encouraged the company to raise its revenue guidance for fiscal 2006 from a gain of between 11% and 12% to a higher range of 13% to 15%. Even Hurricane Katrina, which required the company's New Orleans office to implement its business continuity plan, didn't throw Paychex off stride.
Ah, what a story this stock gives you. If you had purchased it in January 1990, your cost would be a split-adjusted $0.23 a share. That is an amazing 162-bagger. And believe me, a stock with that sort of record comes at a price. The stock is selling for 28.1 times fiscal 2007 earnings (which ends May 2007), and analysts expect to grow earnings 16.0% a year annually for the next five years.
Competitor and industry leader Automatic Data Processing
Cash-rich and debt-free, Paychex has a lot to like. But as mentioned before, economic growth and high employment rates drive this company's results. While the stock is reaching new 52-week highs today, investors should consider the impact of high gas prices and already high employment rates on the company's future. At today's prices, there is little room for anything but excellent long-term performance.
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