Stock (Symbol) |
Paycom Software (PAYC) |
Stock Price |
$83 |
Sector |
| Technology |
Data is as of |
| January 4, 2018 |
Expected to Report |
| Feb 6 |
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) is one of the hottest stocks around — and profit growth is the reason. Here’s PAYC’s profits and estimates (e) from 2014 thru 2019:
2014 $0.19 If accomplished, this would be a ten-fold gain in profits in just five years. And since profit growth correlates to stock growth, this stock continues to be in demand. And, profit estimates have been jumping so perhaps the company could earn $2 this year. 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 $101 million last qtr, with $31 million in EBITA, and management bought back $17 million in stock. Recurring revenue 98% of total sales. This stock has been amazing, and is worthy of a high multiple. My Fair Value is a P/E of 60, which is $92 for 2018 and $118 for 2019, but I expect my Fair Values to climb this year as PAYC’s beaten the street the last nine qtrs. |
One Year Chart |
 Sales jumped 31% last qtr, with profits soaring 93% on an easy comparison in the year-ago period. Still, the company beat the $0.19 estimate by 10 cents which is amazing. Also, the Est. LTG fell from 49% to 28% two qtrs ago. Still, PAY continues to grow around 50%. Qtrly profit Estimates for the next 4 qtrs are 33%, 21%, 23% and 7%. And these just increased. Also that 7% number will likely get revised higher as PAYC beat the street last qtr — the comparison qtr — and analysts have to update numbers. |
Fair Value |
 PAYC had a 65 P/E the last 2 qtrs. My Fair Value is a P/E of 60 but I could easily make it 65. In these projections…2018’s profit estimate has risen from $1.39 to $1.43 and $1.54. PAY hasn’t reported 2017 Q4 yet, so perhaps the company could earn $2 in 2018? I’m not saying it will, but rising estimates is a key characteristic of top stocks. Even if the stock is a little ahead of itself right now, the upside to 2019 is still solid. |
Bottom Line |
 Paycom Software has an amazing business model and a super stock. Although the stock seems high, it’s really just traveling along its trendline — which is fine. I like Paycom a lot. What’s nice is this company focuses on the smaller businesses, and isn’t in a fight with bigger players that are vying for large accounts. PAYC ranks 19th of 39 stocks in the Growth Portfolio Power Rankings. If the stock takes a breather I’ll look to add it to the Aggressive Growth Portfolio. Note Paycom has given investors buying opportunities in the past. |
Power Rankings |
Growth Stock Portfolio
19 of 39Aggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
