Paycom Software (PAYC) is a great concept for business owners who own small companies that don’t have a big HR department. Paycom has a complete cloud-based HR program that the owner or human resource personnel can log into online and do everything related to employees. The list of things that can be accomplished using Paycom is long. From talent acquisition and background checks, to payroll and time-off requests, and compliance tasks such as government registrations, benefits administration, COBRA and retirement. It figures out the Affordable Care Act for you.
PAYC was on the mid-to-high $30s for much of the Summer and broke out past $40 this week. I was tempted to buy — and still might — but saw the stock as high priced.
One Year Chart
Paycom is growing by leaps-and-bounds, and the stock market has priced PAYC at more than 100x earnings. Revenue jumped 47% and profits flew ahead 150% last qtr. The company beat the 6 cent estimate by 4 cents — that’s big.
Looking ahead, analysts predict this profit growth the next four qtrs: 40%, 0%, 17%, 20%. But if PAYC keeps beating the street these numbers could jump. Like next qtr, the estimate is for $0.07 vs. $0.05 = 40% profit growth. If PAYC beats by 4 cents (it has the last 2 qtrs) it will have 120% profit growth ($0.11 vs $0.05).
Fair Value
If I put a Fair Value of 65x earnings on PAYC its overvalued here. But if we pass on buying this stock could take off and leave us behind. Most of my mistakes the past few years have been from not buying stocks are they break out because they were too expensive, then I watched them soar.
Sharek’s Take
Paycom Software is producing results that are better than people expect, and that’s why the stock’s climbing. A year ago the company wasn’t doing as well and thus the stock wasn’t as hot. Also the P/E was high and that’s why I didn’t buy (broke out at around 100x earnings). What to do right now? I’m going to keep PAYC on the radar as it has fallen a bit below $40 due to a stock market which is going down most days. I’ll watch the stock daily and try to get in at a better price, but may have to buy if it goes past $40 again on high volume.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
