Paychex, Inc. (PAYX)

robinstarveling (97.34) Submitted: 10/07/07 5:34 PM : Start Price: $41.41 PAYX Score: 3.57

This is a great, well-managed company, and my hat is off to Tom Golisano, but I can't reconcile the current earnings multiple with the company's prospects.

My conservative valuation comes out at about $25, assuming 12% growth in earnings and little to none in tangible book value for the next 5 years, at which time I think PAYX should trade with a P/E of 15. A lot of those earnings should be paid out in dividends (current payout ratio is 66% for a yield of 3%, which tells you something). You might get the chance to reinvest those dividends at a better price, but even so... check, please.

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