Paychex (NASDAQ: PAYX) and Barrett Business Services (NASDAQ:BBSI) are both business services companies, but which is the better investment? We will compare the two companies based on the strength of their earnings, valuation, dividends, risk, profitabiliy, analyst recommendations and institutional ownership.

Dividends

Paychex pays an annual dividend of $1.84 per share and has a dividend yield of 3.2%. Barrett Business Services pays an annual dividend of $1.00 per share and has a dividend yield of 1.8%. Barrett Business Services pays out 48.3% of its earnings in the form of a dividend. Paychex has increased its dividend for 6 consecutive years. Paychex is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider & Institutional Ownership

68.4% of Paychex shares are owned by institutional investors. Comparatively, 73.0% of Barrett Business Services shares are owned by institutional investors. 11.6% of Paychex shares are owned by company insiders. Comparatively, 6.3% of Barrett Business Services shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Earnings and Valuation

This table compares Paychex and Barrett Business Services’ top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Paychex $3.15 billion 6.55 $1.37 billion N/A N/A
Barrett Business Services $859.62 million 0.47 $27.55 million $2.07 26.95

Paychex has higher revenue and earnings than Barrett Business Services.

Analyst Ratings

This is a summary of recent recommendations and price targets for Paychex and Barrett Business Services, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Paychex 4 10 1 0 1.80
Barrett Business Services 0 0 0 0 N/A

Paychex currently has a consensus price target of $59.16, indicating a potential upside of 3.01%. Given Paychex’s higher possible upside, equities analysts clearly believe Paychex is more favorable than Barrett Business Services.

Risk & Volatility

Paychex has a beta of 0.96, meaning that its stock price is 4% less volatile than the S&P 500. Comparatively, Barrett Business Services has a beta of 1.37, meaning that its stock price is 37% more volatile than the S&P 500.

Profitability

This table compares Paychex and Barrett Business Services’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Paychex 25.93% 42.65% 12.55%
Barrett Business Services 1.81% 34.17% 3.53%

Summary

Paychex beats Barrett Business Services on 12 of the 15 factors compared between the two stocks.

About Paychex

Paychex, Inc. is a provider of integrated human capital management (HCM) solutions for payroll, human resource (HR), retirement and insurance services for small- to medium-sized businesses in the United States. The Company also has operations in Germany. The Company offers services, including Payroll processing, Human Resource Services, and Accounting and Financial Services. As of May 31, 2016, the Company serviced approximately 605,000 payroll clients. It offers a portfolio of HCM services and products that allows its clients to meet their payroll and HR needs. Its payroll-related ancillary services and human resource service (HRS) offerings often leverage the information gathered in the base payroll processing service, allowing it to provide outsourcing services covering the HCM spectrum. The Company, through its HCM software-as-a-service platform, Paychex Flex, provides an integrated product suite that covers the employee life cycle from recruiting and hiring to retirement.

About Barrett Business Services

Barrett Business Services, Inc. (BBSI) is a provider of business management solutions for small and mid-sized companies. The Company has developed a management platform that integrates a knowledge-based approach from the management consulting industry with tools from the human resource outsourcing industry. BBSI’s purpose is to advocate for business owners, particularly in the small and mid-sized business segment. The Company offers two categories of services: Professional Employer Services (PEO) and Staffing. Its staffing services include on-demand or short-term staffing assignments, contract staffing, direct placement, and long-term or indefinite-term on-site management. As of December 31, 2016, the Company operated in 20 states and the District of Columbia through a network of 57 branch locations in California, Oregon, Utah, Washington, Idaho, Arizona, Colorado, Maryland, North Carolina, Delaware, Nevada, Pennsylvania and Virginia.

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