Short Trade Idea
Enter your short position between 140.83 (the intra-day low of a previous harami candle that led to a small advance) and 144.17 (the lower band of its horizontal resistance zone).
Market Index Analysis
- Paychex (PAYX) is a member of the NASDAQ 100 and the S&P 500.
- Both indices trade near record highs driven by the AI hype, but technical cracks suggest caution ahead.
- The Bull Bear Power Indicator of the S&P 500 shows a negative divergence.
Market Sentiment Analysis
US President Trump announced higher-than-expected tariffs of 30% on key trading partners, the EU and Mexico. It could lead to a 20% blanket tariff on all other countries that did not receive a letter, twice the rate markets warmed up to. While markets focused on AI-related stories to climb a wall of worry, they ignored the likely inflationary impact. The situation surrounding the US Fed and the likelihood of Powell not finishing his term should also worry investors.
Paychex Fundamental Analysis
Paychex is a human resources, payroll, and employee benefits company focused on small- to medium-sized businesses. It has over 100 offices and serves over 740,000 clients across the US and Europe.
So, why am I bearish on PAYX after its recent correction?
The core customer base of Paychex will struggle the most amid tariff uncertainty and a clouded economic outlook. While the US labor market has remained resilient, consumer spending appears on the verge of a spending recession, and higher tariffs are ahead. Executives at PAYX dismissed rising bankruptcies and consolidations in the small business sector during its dismal earnings call, seeing double-digit growth in select operating units. I see more downside ahead, led by its gross margin contraction and high debt levels.
|
Metric |
Value |
Verdict |
|
PE Ratio |
31.29 |
Bearish |
|
PB Ratio |
12.51 |
Bearish |
|
PEG Ratio |
2.54 |
Bearish |
|
Current Ratio |
1.28 |
Bearish |
|
ROIC-WACC Ratio |
Positive |
Bullish |
The price-to-earnings (PE) ratio of 31.29 makes PAYX an expensive stock. By comparison, the PE ratio for the S&P 500 is 28.89.
The average analyst price target for PAYX is 145.44. It suggests nearly fully valued shares with increasing downside risks.
Paychex Technical Analysis
Today’s PAYX Signal
- The PAYX D1 chart shows that price converted a horizontal support zone into solid resistance.
- It also shows the 38.2% Fibonacci Retracement Fan level rejecting price action.
- The Bull Bear Power Indicator has been in a correction for over three weeks and remains in bearish territory.
- The average trading volumes during selloffs are higher than during advances.
- PAYX corrected as the S&P 500 rallied, a massive bearish sign.
My Call
I am taking a short position in PAYX between 140.83 and 144.17. The latest earnings release showed growing concerns about the balance sheet and fundamental data. With the economy struggling, stagflation an underappreciated risk, and rising tariffs, I predict a market sell-off during the third quarter, which could hit Paychex especially hard.
- PAYX Entry Level: Between 140.83 and 144.17
- PAYX Take Profit: Between 115.54 and 120.14
- PAYX Stop Loss: Between 148.60 and 151.39
- Risk/Reward Ratio: 3.26