Stock (Symbol) |
Paycom Software (PAYC) |
Stock Price |
$107 |
Sector |
| Technology |
Data is as of |
| April 1, 2018 |
Expected to Report |
| Apr 30 |
Company Description |
 Paycom Software, is a provider of a cloud-based human capital management (HCM) software solution. The Company provides functionality and data analytics that businesses need to manage the complete employment life cycle from recruitment to retirement. Source: Thomson Financial |
Sharek’s Take |
 Paycom Software (PAYC) has been one of the hottest stocks around for a while now. But this qtr the stock’s been extra special, as 2018 profit estimates just jumped from $1.54 to $2.46. I spent a lot of time researching why. First I thought it was a lower tax rate. Nope. Then in the earnings release I didn’t find any special comments from management. Hmmm. Finally, when I went into the estimates financials I found the answer. Selling & Marketing Expense is expected to show year-over-year growth of -6%, 8%, 8% and -2% the next 4 qtrs. Meanwhile revenue growth is expected to be around 25% in each of those qtrs. That means more bottom line profits — especially next qtr and 4QtrsOut. When I look back at the earnings release I see Paycom will amortize its commission expense it pays to salesmen over a ten-year period (the life of the deal) instead of 30 days after the deal has been live. PAYC is going down in the history books as one of the best stocks ever. Because it’s growing profits like a top stock would. Here’s PAYC’s profits and estimates (e) from 2014 thru 2020:
2014 $0.19 If accomplished, this would be a twenty-fold gain in profits in just six years! 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 to “learn the system”. Paycom ranked 2nd in Fortune Magazine’s 100 fastest growing companies for 2017. Sales were $114 million last qtr, with $32 million in EBITA, and management bought back around $40 million in stock. If that wasn’t enough, PAYC’s beaten the street the last ten qtrs. My Fair Value is a P/E of 60 which gives me a 2018 Fair Value of $148. |
One Year Chart |
 What a pretty chart. And you can see the effect of the profit boost in the stock price the last month or so — Zoom! Qtrly profit Estimates for the next 4 qtrs are 91%, 85%, 72% and 100%. Last qtr analysts expected 21% growth on avg for the next 4 qtrs. Now that figure is 87%. Incredible. AND over the last three qtrs PAYC’s P/E has declined from 65 to 54 and now 44. |
Fair Value |
 I’m keeping my Fair Value at a P/E of 60, which with the earnings increases gives this stock huge upside for this year and next. |
Bottom Line |
 Paycom Software is a super stock because of the company’s amazing business model. And I’m stunned the company puts so much cash into stock buybacks. Profits could double in 2018 due to lower SG&A, and at just 44x earnings the stock is vastly undervalued in my eyes. The P/E is usually around 60. PAYC skies higher in my Power Rankings, jumping from 19th to 4th in the Growth Portfolio Power Rankings. I will also add it to the Aggressive Growth Portfolio. I wanted to put the stock 2nd in the Power Rankings but in the ten-year chart it’s already gone parabolic and could be prone for a deep decline. |
Power Rankings |
Growth Stock Portfolio
4 of 39Aggressive Growth Portfolio 4 of 19Conservative Stock Portfolio N/A |
