Paychex, Inc. (PAYX) and ZipRecruiter, Inc. (ZIP) are two prominent players in the staffing & employment services industry. PAYX provides comprehensive payroll and integrated human resource and employee benefits outsourcing solutions for small- to medium-sized businesses. ZIP is an online employment marketplace that provides recruiting, job posting, online interviews, candidate screening, application updates and job alerts services.
With declining unemployment rates, rising job opportunities and wage increases as the U.S. labor market improves, companies that deliver staffing and employment services are putting their best efforts into providing efficient services to their clients. Therefore, we think both PAYX and ZIP should benefit from the industry tailwinds.
In terms of their past month’s performance, ZIP is a clear winner with 16.4% gains versus PAYX’s 7.5%. But, which of these stocks is a better pick now? Let’s find out.
Latest Movements
On April 22, PAYX was honored with two Alexander Hamilton Awards by Treasury & Risk magazine for making business operations less risky and helping customers achieve financial security during the COVID-19 pandemic. Consequently, PAYX’s risk management solutions are likely to gain widespread recognition across the industry in the coming months.
In an announcement dated June 10, 2021, ZIP reported that its ‘Invite to Apply’ has generated 2.5 times more candidates for jobs available. This smart hiring tool leverages ZIP’s powerful matching technology to identify candidates who are a strong fit for open roles and presents them to hiring managers. ZIP has received widespread recognition and acclaim for this tool in the industry.
On April 12, ZIP launched a new ‘Act Fast!’ alert that helps businesses secure top candidates. ZIP’s ‘Act Fast!’ label on an applicant’s profile helps employers know whether they are being actively recruited by other companies, which spurs employers to reach out to the applicant quickly. Amid falling unemployment rates in the current economic recovery period, ZIP’s new label addition should help employers make their hiring process more efficient.
Recent Financial Results
For its fiscal fourth quarter, ended May 31, 2021, PAYX’s total revenue increased 12.5% year-over-year to $1.03 billion. The company’s non-GAAP operating income came in at $353.80 million, up 18.1% from the prior-year period. While its non-GAAP net income increased 18.2% year-over-year to $260.80 million, its non-GAAP EPS increased 18% year-over-year to $0.72. The company had $995.20 million in cash and cash equivalents, as of May 31, 2021.
ZIP’s total revenues for its fiscal first quarter, ended March 31, 2021, increased 10.7% year-over-year to $125.37 million. The company’s income from operations is reported to be $16.47 million, compared to a $10.77 million loss in the first quarter of 2020. ZIP’s net income came in at $13.40 million for the quarter, compared to a $11.08 million net loss in the prior-year period. Its EPS was $0.10, compared to a $0.15 loss per share in the year-ago period. As of March 31, 2021, the company had $135.07 million in cash.
Past and Expected Financial Performance
PAYX’s EBITDA has declined 1.1% over the past year. Analysts expect PAYX's revenue to increase 7.2% year-over-year in the current year and 5.7% next year. Its EPS is expected to increase 5.9% next year.
In comparison, ZIP’s EBITDA grew 1791.9% over the past year. Analysts expect ZIP's revenue to increase 42.4% year-over-year in the current year and 18.9% next year. Its EPS is expected to increase 1218.8% next year.
Profitability
PAYX’s trailing-12-month revenue is 9.4 times ZIP’s. However, ZIP is more profitable with an 87.1% gross profit margin versus PAYX’s 68.7%.
Also, ZIP’s ROE and ROTC values of 177% and 43.9%, respectively, compare favorably with PAYX’s 38.3% and 24.1%.
Valuation
In terms of trailing-12-month EV/Sales, PAYX is currently trading at 9.87x, which is 59.2% higher than ZIP’s 6.20x.
Also, in terms of trailing-12-month Price/Sales, PAYX’s 9.97x is 120.6% higher than ZIP’s 4.52x.
Thus, ZIP is more affordable here.
POWR Ratings
While PAYX has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, ZIP has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
Both ZIP and PAYX have an A grade for Quality, which is consistent with their higher-than-industry profitability ratios. PAYX’s 27.1% trailing-12-month net income margin is 404.3% higher than the 5.4% industry average. In comparison, ZIP has a 25.7% net income margin, which is 549.8% higher than the 4% industry average.
In terms of Value, ZIP has been graded a C, which is in sync with its slightly higher valuation ratios compared to its peers. Also, ZIP’s 4.48x forward EV/Sales value is 64.9% higher than the 2.72x industry average. However, PAYX’s D grade for Value signifies its overvaluation. The company has a 9.21x forward EV/Sales, which is 120.3% higher than the 4.18x industry average.
Of 20 stocks in the A-rated Outsourcing - Staffing Services industry, ZIP is ranked #10.
PAYX is ranked #26 of 49 stocks in the B-rated Outsourcing - Business Services industry.
Beyond what we’ve stated above, our POWR Ratings system has also rated both PAYX and ZIP for Growth, Momentum, Sentiment, and Stability.
Get all PAYX ratings here. Also, click here to see the additional POWR Ratings for ZIP.
The Winner
Amid the fast-paced economic recovery period, we think the platforms and other services offered by PAYX and ZIP should enable them to grow in the coming months. However, ZIP’s higher profitability makes it a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Outsourcing - Staffing Services industry, and here for those in the Outsourcing - Business Services industry.
PAYX shares were trading at $112.40 per share on Thursday afternoon, up $0.07 (+0.06%). Year-to-date, PAYX has gained 22.28%, versus a 16.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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