Why Paychex (PAYX) Stock Is Down Today

What Happened?

Shares of human capital management company Paychex (NASDAQ:PAYX) fell 3.2% in the afternoon session after the company reported third-quarter 2025 results that, despite meeting revenue expectations and beating on adjusted earnings per share, revealed a significant drop in profitability. 

Revenue for the quarter came in at $1.54 billion, which was in line with Wall Street's expectations, and adjusted earnings per share of $1.22 beat estimates. However, investors focused on weaker underlying metrics. Specifically, its operating margin, a key measure of profitability, fell significantly to 35.2% from 41.5% in the same quarter of the previous year. Additionally, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), another profit metric, came in at $680 million, missing analysts' estimates. These signs of shrinking profitability appeared to outweigh the headline beats, causing concern among investors.

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What Is The Market Telling Us

Paychex’s shares are not very volatile and have only had 5 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 6 months ago when the stock gained 6.2% on the news that the company reported decent first quarter (fiscal Q3 2025) earnings. 

There weren't many resounding positives in these results. Both revenue and EBITDA were roughly in line with expectations. However, free cash flow improved significantly. Taking a closer look at the numbers, sales rose 5% year-on-year, with momentum coming from its core Management Solutions and PEO services, though growth was partly dampened by the end of its Employee Retention Tax Credit program. Guidance for the full year was largely unchanged, though it was important to keep in mind the company's pending acquisition of Paycor, a move that could expand its market reach. Overall, this was a good quarter.

Paychex is down 10.2% since the beginning of the year, and at $124.44 per share, it is trading 22.1% below its 52-week high of $159.78 from June 2025. Investors who bought $1,000 worth of Paychex’s shares 5 years ago would now be looking at an investment worth $1,560.

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