Jim Cramer Provides the “Bear Case” for Paychex, Inc. (PAYX)

Paychex, Inc. (NASDAQ:PAYX) was featured on Mad Money as Jim Cramer shared his take on the stock amid a sliding macro environment. Cramer highlighted the CEO’s thoughts on the company as he said:

I’m calling it the macro morass. That’s what we’re experiencing right now with so many not-so-hot stocks of very good companies. Case in point, two companies that we heard from during yesterday’s show, Paychex and Generac. Let’s take them one at a time so I can show you how the macro morass affects you and me. John Gibson is the eloquent CEO of Paychex, a no-nonsense representative of a payroll processor that’s been on the show virtually since we went on the air. Told a story of strong growth with a terrific acquisition of Paycor, which has helped them beef up their medium-sized business offerings.

John emphasized that, despite what you might think, business is very strong, with a portion of the economy that is doing very well. Small and medium-sized businesses are Paychex’s bread and butter. They’re also the backbone of the economy, and they’re much less hostage to problems overseas. Well, the people are still hiring, and that’s Paychex’s bread and butter. The stock itself seems quite fetching given its better-than-expected quarter. Paychex sells at a reasonable price to earnings multiple of 17, used to be much higher. Spectacular 4.6% dividend. Sounds great, right?

But let me give you the bear case. The economy’s slowing. You can’t buy a payroll processor in a situation where the economy might end up in a recession. It has a price-to-earnings multiple of 17, but so what? It used to be 30. Why must it stop at 17? How about 15? Its yield is at 4.6, yeah, but can it go to 5? Sure. That’s the macro morass. It takes everything Gibson said and stands it on its head, which makes the stock overvalued even as it’s pulled back from $161 to $93. I think the macro morass is absurd. This should be a great stock to match the great underlying company, but I see no catalyst that can put them together. So I succumb to the zeitgeist myself. I hit the don’t buy button. It’s finished up 23 cents today, [don’t buy, don’t buy].

Photo by Adam Nowakowski on Unsplash

Paychex, Inc. (NASDAQ:PAYX) provides human capital management solutions, including payroll processing, payroll tax and compliance, HR administration, benefits, and workforce management for small to mid-sized businesses.

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