Stock (Symbol) |
Paycom Software (PAYC) |
Stock Price |
$70 |
Sector |
| Technology |
Data is as of |
| June 20, 2017 |
Expected to Report |
| Jul 31 |
Company Description |
 Paycom Software, Inc. is a provider of cloud-based HCM software solution that 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 on a roll since last November, going from $40 to $70 in just 7 months. What’s been pushing the stock higher is a series of earnings beats. The past 5 qtrs, analysts have expected profit growth of 58%, 30%, 38%, 20% and 24%. The company has instead delivered growth of 175%, 110%, 88%, 80% and most recently 42%. 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 has a nice expansion model, where it enters new cities with an experienced sales rep that becomes a manager, makes job applicants prove themselves by setting up two appointments before hiring them, and then has them set out on an organized plan to get appointments and sales. Businesses then utilize their own employees “learn the system”. Paycom recently entered the Milwaukee market. Last qtr sales rose 33%, with a 86% profit margin. The company also boasts a 91% client retention rate. Paycom had $55 million in free-cash flow last year and recently initiated a $50 million stock buyback program on top of the $50 million one it had in 2016. Overall this continues to be one of the top stocks on the market, as it did $120 million in sales last qtr and made a profit before taxes of close to $40 million. My Fair Value is 60x earnings or $65 this year and $83 in 2018. |
One Year Chart |
 PAYC had a 55 P/E last qtr and has a 65 P/E this qtr, taking the stock from undervalued to overvalued (in my eyes). Last qtr profits jumped 42% on a 33% rise in sales. 2017 profit estimates increased from $1.02 to $1.09. Profit Estimates for the next 4 qtrs are -5%, 27% 28% and 15% profit growth the next 4 qtrs. Paycom’s Est. LTG just fell from 49% per year to 28% but I don’t envision growth slowing. |
Fair Value |
 This company has had profits surge from $0.19 to $0.40 and $0.87 the past three years. That growth rate is expected to slow this year, but PAYC keeps beating the street so these figures shown here could be low. But for now the stock trades above my Fair Value. |
Bottom Line |
 Paycom Software has an amazing business model that I envy with my own business. The stock’s been on a tear lately, and with the trajectory of the stock price, I feel a correction could take the stock down 20% or more from here. Thus, if you have this stock as a large holding, I suggest you take profits and sell up to half your position. Still, this company has vast potential, and I wouldn’t leave the stock entirely. If you don’t already own Paycom I would try to be patient and buy on a 10% to 15% correction. PAYC ranks 22nd of 30 stocks in the Growth Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
22 of 30Aggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
