Wednesday, September 15, 2010

Get Paid To Wait By Paychex

Imagine a business that makes money when companies are hiring and interest rates are at a nice, healthy level. Now imagine how well a business like that might be doing right now. Therein lies the problem with Paychex (Nasdaq:PAYX). Although this provider of HR and payroll services to small-to-mid-size businesses is a fine company with ample growth prospects, the company's stock has been knocked down by a one-two punch outside of its control. 

Low Rates Are Not Good For Everybody
Like its larger competitor Automatic Data Processing (NYSE:ADP), Paychex has traditionally garnered a nice chunk of very high-margin revenue by earning interest on the payroll amounts that it processes for employers. In a nutshell, Paychex requires that client companies transfer funds to them before they must send them on to the employees, creating a "float" that the company can invest in interest-bearing instruments like commercial paper or bonds. While not exactly the same, this float is analogous to the float that Berkshire Hathaway's (NYSE:BRK.A) Warren Buffett often references as a major source of that company's competitive advantage. (For more on this topic, check out Competitive Advantage Counts.)


For the full article, please go to:
http://stocks.investopedia.com/stock-analysis/2010/Get-Paid-To-Wait-By-Paychex-PAYX-ADP-BRK.A-ASF-RHI0915.aspx

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