Paychex, Inc. (PAYX) has a lot going for it. This commercial services company recently expanded its outsourcing capability with three notable value-adds:
- A cloud-based time and attendance service (bolt-on via its acquisition of Nettime Solutions last June)
- A mobile time-punch application called Paychex Time
- A health care product that helps clients navigate the complexities of the Affordable Care Act
In addition, their client retention level is 82% (an all-time high), their quarterly dividend has tripled since 2005, and their previous quarter earnings were up 9% while revenue grew 10% (the best in over four years).
More importantly, last week, PAYX broke through overhead resistance to new 52-week highs. The move comes after an 11-week price consolidation. Corrections take place in one of two ways – through price (declines) or through time (sideways price consolidation). Of the two, a correction through time is the most powerful. This bullish continuation pattern in PAYX has formed within an uptrend (note the upward price channel on the weekly chart below). In addition, last week’s breakout took place after a previous breakout from a bullish cup formation (see rounded line on weekly chart below) that took 45 weeks to form. That is a real nice base. Technicians know, “the longer the base, the higher the space.”
What’s great about price patterns is that our risk and reward are well defined. In this case, our reward target is 55ish, a 14% gain. And we can choose one of two stop loss levels to manage risk – either 47.00 (below previous weekly resistance now turned support) or tighter at 47.50 (a logical support level on a daily basis).
We have our entry (right now), our stop loss, and our target. We don’t enter a trade without an exit plan. So we have our game plan and will enter this trade because of the robust risk/reward opportunity. If we get stopped out, we don’t care. That means our risk management is solid. We’ve removed the emotion while identifying great potential gains. Enjoy.
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[…] days ago, we wrote about a stock we thought was going higher based on its breakout from 11 weeks of consolida…. We were wrong. And we like it. At 360 Investment Research, we aren’t concerned about being […]