Small businesses continue to shed jobs and payrolls are way down, so why does payroll processor Paychex, Inc. (NASDAQ: PAYX) keep going up and sport a P/E of 19?

The Bull Case

* The company recently announced earnings that beat estimates: 36 cents per share versus an expected 34 cents.

* Revenues were up 4%, which is a feat in this economy.

* The company is very well managed and this shows in 10%-plus growth in its human resources outsourcing business.

* The stock sports a nice 4.6% dividend.

The Bear Case

* We are likely to see another downturn in hiring, according to ChangeWave Research surveys, which also show a pullback in consumer and corporate IT spending. The 4% growth took place during a temporary bounce in the job market. And the ADP employment report also tells me hiring will slow again.

* Paychex earns money on the funds it holds for company payrolls and 401(k) contributions. Interest rates are not going up anytime soon, so this category of revenue, one that fell 12% last quarter, will not be increasing anytime soon

* Growth in the HR outsourcing business will likely slow as small- and medium-sized businesses become accustomed the new health care laws.

* A 4.6% dividend seems unsustainable once the double-dip recession takes hold.

How to Play PAYX

I am a bear on the market and on Paychex. I typically like well-managed outfits like this, but the stock is overpriced, which makes it vulnerable to negative catalysts, especially a dividend cut. If you agree, you should consider some longer-term PAYX put options.

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