Wednesday, December 8, 2010

PAYX Watch

When companies outsource their payroll and human resources operations, Paychex Inc. (PAYX) is one of the companies they outsource to. PAYX announces earnings after the close on Dec. 20.

ppspsarmacd obvh-a trend ma20ma50ma200
PAYX $30.37

The company fits my criteria for a growth stock -- return on equity of nearly 35%, no debt to speak of, a high rate of institutional ownership at 63%, and a price that has been climbing aggressively since mid November.

Revenues stumbled a bit in 2009, but if the last three quarters are prolog, 2010 will recover the upward revenues momentum.

On the Person's chart, PAYX is approaching the upside weekly pivot and has bounced down from its neighborhood twice.

Person's Table
ppspps openupper pivotlower pivot
PAYX $30.37 $28.02 nov18 $30.75 +1.3% $28.67 -5.6%

The stock is trading at levels last seen last April.

Reversal Levels
  • $31.91, +5.1% (late April swing high)
  • $30.58, +0.7% (Tuesday swing high)
  • $30.37 --- You are here.
  • $28.66, -5.6% (20-day moving average)
  • $27.91, -8.1% (minor swing low)

PAYX has sufficient upside potential to be interesting.

The problem is happy earnings surprises. There aren't enough of them.

In the past eight earnings announcements, only three have been positive surprises. Three have been negative surprises, and two have been on the money.

I've written before of my theory that earnings surprises aren't always happy accidents. They are sometimes the result of company policy, when the executive suite has decided that upside earnings surprises keep the Wall Street analysts happy, and therefore help boost the bottom line.

For my earnings plays, I'm looking for companies that embrace earnings surprises as a public relations tool.

PAYX's policy is obviously not pro-surprisalist.

In PAYX's favor, earning surprises are generally followed by appropriate price moves, except for the unfortunate occasion last June, when a 1¢ upside surprise was followed by an eight day price slide covering 9.2%.

So PAYX makes me nervous as an earnings play. It has the growthy fundamentals and the bouncy chart, but the lack of joy on earnings days takes it off my list of decent earnings plays.

However, I might consider it for a longer-term growth play. Its business lends itself to the growth of new businesses in the early phase of economic recovery, what ecologists call the r-phase, or exploitation phase, in the life cycle of an environment.

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

  • h-a trend - Heikin-Ashi trend.
  • obv - On-Balance Volume.
  • pps - Person's Proprietary Signal.
  • psar - Parabolic Stop and Reverse
  • ma20 - 20-day moving average
  • ma50 - 50-day moving average
  • ma200 - 200-day moving average
  • macd - Moving Average Convergence-Divergence

About the glance: The colors indicate the state of each signal.
  • Signal Section:
    • pps, psar, macd: green for bull mode, red for bear.
  • Confirmation Section:
    • obv: green for uptrending, red for downtrending.
    • h-a trend: green for uptrending, red for downtrending.
  • Environment Section:
    • ma20, ma50, ma200: green for above the average, red for below the average.

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