Stock (Symbol) |
Paycom Software (PAYC) |
Stock Price |
$43 |
Sector |
| Technology |
Data is as of |
| November 2, 2016 |
Expected to Report |
| Feb 7 – Feb 13 |
Company Description |
 Paycom Software, Inc. is a provider of cloud-based HCM software solution delivered as SaaS. The Company’s solution requires no customization and is -based on a core system of record maintained in a single database for all HCM functions. Talent acquisition includes applicant tracking, candidate tracker, background checks, on-boarding, e-verify & tax credit services. Time & labor management includes time and attendance, scheduling/schedule exchange, time-off requests, labor allocation & labor management reports/push reporting. Payroll includes payroll & tax management, Paycom pay, expense management and garnishment management. Talent management includes employee self-service, compensation budgeting, performance management, executive dashboard & Paycom learning. HR management includes document and task management, government and compliance, benefits, COBRA, personnel action forms, surveys and ACA dashboard. Source: Thomson Financial |
Sharek’s Take |
 Paycom Software (PAYC) has been around $50 for a while now, with a P/E in the 60s. Yes the P/E is high, but when analysts estimate you will grow profits around 50% the next 3-to-5 years a high P/E is justified. Today PAYC reported profits of $0.15, which beat my estimate of $0.11 by 4 cents. It was a solid beat, with 40% sales growth. The problem is in the prior qtr PAYC was expected to make $0.13 and came through with $0.21. So this time the company didn’t beat by as much, and with the stock market headed lower for a 7th straight day investors took the stock down from $52 to $43.
Paycom offers a complete cloud-based HR program for small and medium sizes businesses that human resource personnel can log into online to process payroll and benefits for employees. This software makes it easy to do talent acquisition and background checks, to payroll and time-off requests, as well compliance tasks such as government registrations, benefits administration, COBRA and retirement. It even figures out the Affordable Care Act. PAYC is one of the top growth stocks in the market, and I will purchase it today for the Growth Portfolio. With us entering the 4th qtr, I’m looking ahead to 2017 to calculate my P/E ratio — which is now 42 and is down from 66 last qtr. This stock is the #1 stock on my radar and I’m lucky it dropped like this. Fear of the Presidential election is partially to blame. My 2016 Fair Value is $62, and in one day the upside to next year’s Fair Value has gone from 19% to 44%. |
One Year Chart |
 This stock last gave us a good buying opportunity during the stock market correction during January & February. I didn’t buy the stock then, and have regretted it since. Now we get another dip. This time the stock bounced off its 200-day moving average and found support at $42 — both signs are good. The only negatives I see are profit Estimates for the next 4 qtrs are now: 20%, 15%, 19% and 40%. That’s not 50% like we are hoping for, but again PAYC has beaten the street the last 4 qtrs so let’s see what happens. Outstanding Estimated Long-Term Growth Rate of 49% per year, but this is down 2% from last qtr. P/E of 42 is low from what it used to be. |
Fair Value |
 This stock has always had a high P/E ratio. Theses software companies are great. They make a software then get recurring fees of it. No cost of goods sold. The Microsoft model. My Fair Value comes down from 65x earnings to 60x as growth really could slow in the coming qtrs. Still, this stock has 44% upside to 2017’s Fair Value and 90% to 2018’s. |
Bottom Line |
 Paycom Software was clicking on all cylinders and now has hit a bump in the road. Still, the company is growing rapidly and I feel the stock could be in for a quick rebound higher. If not, there’s always the chance someone comes in and buys the company. I’m pleased to announce I will add PAY to the Growth Portfolio today where it will rank 19th of 38 stocks in the Power Rankings. |
Power Rankings |
Growth Stock Portfolio
19 of 38Aggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
