Stock (Symbol) |
Ultimate Software (ULTI) |
Stock Price |
$197 |
Sector |
| Technology |
Data is as of |
| November 27, 2017 |
Expected to Report |
| Jan 29 |
Company Description |
 ULTI is a cloud provider of people management solutions, referred to as human capital management (HCM). UltiPro product suite (UltiPro) is engaging solution that has human resources (HR), payroll, and benefits management and includes global people management, available in approximately 10 languages with over 35 country-specific localizations. Source: Thomson Financial |
Sharek’s Take |
 HR software provider Ultimate Software (ULTI) is in the midst of having its P/E lowered. And with many high-P/E stocks, the reason for the lower P/E is slower growth. Back when I first purchased ULTI in 2015 Q4 it had a P/E of 65. Since then I’ve sold the stock as it’s treaded water for two years. In this equation profits are growing and the P/E is coming down. Basically, ULTI used to be a dependable grower, and now it’s profit growth has been erratic. Additionally, annual estimates have been mostly on a downtrend. 2018’s have gone from $5.36 to $5.20, $5.07, $5.00, $4.92, $4.93, $4.39 and $4.54 during the past two years. Annual profit growth has fallen from 60% to 32%, 26%, 19% and 14%(est) the past five years. Still, this is a good company, one I feel is deserving of a 35 P/E. But that gives me a Fair Value of $159 for 2018, around 20% below ULTI’s recent price. Ultimate Software develops and operates cloud-based human resource software. Its UltiPro processes payroll, benefits, and time clock abilities. Optional add-ons include recruiting and new employee tools, as well as its Talent Management suite which is composed of Performance Management, Talent Predictors and Succession Management. The company was founded in 1990 by Scott Scherr, the current CEO, went public in 1998, and went to a cloud-based platform in 2002. Revenue since 2002 has grown at a CAGR of 20% — with record revenue each year. Recurring revenue accounts for 80% of sales and the company has a 95% customer retention rate. Ultimate Software is trying to go after bigger customers, but that’s Workday’s turf. And I don’t know if that will be successful because Workday might have better software. Right now ULTI is on my radar. |
One Year Chart |
 Last qtr ULTI delivered 35% profit growth which blew past estimates of 13% growth. BUT, that estimate was reduced from 37% a qtr earlier. These are big swings, and I’m not a fan of uncertainty. Sales grew 20% for the 2nd straight qtr. NxtQtr’s has fallen two straight qtrs as well, from 38% to 7% and now -4%. I bet ULTI will beat the street now that it’s lowered the bar so much. See what I mean about the inconsistency though. Estimates are for -4%, 27%, 18% and 15% profit growth the next 4 qtrs but who knows what these will end up at. P/E of 43 is on 2018 estimates, on 2017 estimates it’s 55. That’s high compared to the Est. LTG of 21% a year. |
| Fair Value |
 My Fair Value is a P/E of 35 which makes this stock overvalued. |
Bottom Line |
 Ultimate Software has been a stellar stock during the past decade, but now with computerized HR more mainstream the company is trying to get bigger fish. This move has reduced profit growth as the company has staffed up, but we don’t know if the company will be able to pull off this feat. ULTI is on my radar for the Growth Portfolio. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
