Paychex, Inc. (PAYX): A Bull Case Theory

We came across a bullish thesis on Paychex, Inc. on Compounding Dividends’s Substack by TJ Terwilliger. In this article, we will summarize the bulls’ thesis on PAYX. Paychex, Inc.'s share was trading at $124.37 as of October 6th. PAYX’s trailing and forward P/E were 27.67 and 22.78 respectively according to Yahoo Finance.

Paychex, Inc. (PAYX) is a leading provider of payroll, human resources, and benefits outsourcing services to over 740,000 small and medium-sized businesses across the U.S. The company generates revenue primarily through subscription fees and payroll processing charges, creating a highly predictable and recurring revenue base. Its business model benefits from strong client retention, as switching payroll providers is costly and operationally risky for businesses, making relationships “sticky” over the long term.

Additionally, Paychex earns float income by temporarily holding client funds, allowing it to capitalize on higher interest rates and further strengthen profitability. The company’s financial profile also supports income-oriented investors: although it does not increase dividends annually, Paychex has achieved 5- and 10-year dividend CAGRs above 10%, offering a reliable yield of 3.5% with a payout ratio of 92%. The business’s defensive and recurring nature, combined with exposure to the growth of the U.S. small business sector, makes it resilient through economic cycles, while its subscription-based model provides consistent free cash flow.

Valuation remains reasonable, with a forward P/E of 22.3, reflecting a balance of stability and modest growth. Overall, Paychex represents a compelling investment for both income and long-term growth investors, combining high retention, recurring revenue, and financial discipline, while offering the potential for steady dividend returns and exposure to the expanding small- and medium-sized business market in the U.S. Its combination of defensibility, cash generation, and predictable profitability positions PAYX as a uniquely attractive opportunity in the payroll and HR outsourcing space.

Previously we covered a bullish thesis on Paychex, Inc. (PAYX) by Serhio MaxDividends in May 2025, which highlighted the company’s strong recurring revenue, high margins, and shareholder-friendly capital returns. The company's stock price has depreciated approximately by 16.54% since our coverage due to valuation pressure. The thesis still stands as PAYX remains resilient with sticky clients. TJ Terwilliger shares a similar perspective but emphasizes float income and subscription-based revenue.

Paychex, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 50 hedge fund portfolios held PAYX at the end of the second quarter which was 41 in the previous quarter. While we acknowledge the potential of PAYX as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.