Consider Taking Some Of Your Paycheck To Buy Paychex (PAYX)

Paychex, Inc. (PAYX) has a lot going for it. This commercial services company recently expanded its outsourcing capability with three notable value-adds:

  1. A cloud-based time and attendance service (bolt-on via its acquisition of Nettime Solutions last June)
  2. A mobile time-punch application called Paychex Time
  3. A health care product that helps clients navigate the complexities of the Affordable Care Act

In addition, their client retention level is 82% (an all-time high), their quarterly dividend has tripled since 2005, and their previous quarter earnings were up 9% while revenue grew 10% (the best in over four years).

More importantly, last week, PAYX broke through overhead resistance to new 52-week highs. The move comes after an 11-week price consolidation. Corrections take place in one of two ways – through price (declines) or through time (sideways price consolidation). Of the two, a correction through time is the most powerful. This bullish continuation pattern in PAYX has formed within an uptrend (note the upward price channel on the weekly chart below). In addition, last week’s breakout took place after a previous breakout from a bullish cup formation (see rounded line on weekly chart below) that took 45 weeks to form. That is a real nice base. Technicians know, “the longer the base, the higher the space.”

What’s great about price patterns is that our risk and reward are well defined. In this case, our reward target is 55ish, a 14% gain. And we can choose one of two stop loss levels to manage risk – either 47.00 (below previous weekly resistance now turned support) or tighter at 47.50 (a logical support level on a daily basis).

We have our entry (right now), our stop loss, and our target. We don’t enter a trade without an exit plan. So we have our game plan and will enter this trade because of the robust risk/reward opportunity. If we get stopped out, we don’t care. That means our risk management is solid. We’ve removed the emotion while identifying great potential gains. Enjoy.

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Disclosure: The author is long PAYX.

Additional disclosure: The author may sell his position in PAYX based on the criteria provided in this article.

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Comments

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Carol W 5 years ago Contributor's comment

Any chance this one sells off if the repubs start to eviscerate Obama care?

David Zarling 5 years ago Author's comment

Hi Carol, thanks for reading our article. I would think that if Republicans start to dismantle Obamacare, then Paychex could actually receive demand from customers as a result. The ACA is insanely complex. If lawmakers start removing pieces or changing things, then companies will need even more guidance than before. That's my fundamental interpretation. As I like to tell people, the fundamentals are in the technicals. Price will reflect all opinions of market participants (no matter how rational or irrational they may be). If we track price, we can reasonably track the prospects of this company.

Carol W 5 years ago Contributor's comment

thanks for giving us the support numbers,,I am long- might add on a dip..this market affords ample opps in that way. any idea when ER is?

"longer the base the higher the space"..amen! love long bases, and high tight flags..cheers Carol

David Zarling 5 years ago Author's comment

The non-confirmed earnings release date is expected to be 03/25. Don't hold me to that!:)

Thanks again for checking in and sharing your thoughts.

Ryan Lizotte 5 years ago Member's comment

great article, very clear points. they definitely added value with the mobile/cloud functions.

David Zarling 5 years ago Author's comment

Thanks for stopping by and reading our research, Ryan. We appreciate the compliment. Check back often as we roll out more quality analysis.