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Why Is Paycom (PAYC) Down 14% Since Last Earnings Report?

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A month has gone by since the last earnings report for Paycom Software (PAYC - Free Report) . Shares have lost about 14% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Paycom due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Paycom Q1 Earnings & Revenues Top Estimates, Rise Y/Y

Paycom Software delivered solid first-quarter 2022 performance, wherein the top and the bottom line surpassed the Zacks Consensus Estimate.

The online payroll and human resource technology provider reported non-GAAP earnings of $1.90 per share, beating the Zacks Consensus Estimate of $1.76. The bottom line improved 29.3% from $1.47 per share reported in the year-ago quarter.

For the first quarter of 2022, Paycom reported revenues of $353.5 million, beating the consensus mark of $343.3 million and improving 29.9% year over year. This year-over-year upside was primarily driven by new client additions and continued focus on cross-selling to existing clients.

Quarter in Detail

Paycom’s recurring revenues (representing 98.5% of total revenues) improved 30% to $348.2 million in the first quarter.

Adjusted gross profit climbed 29.9% from the year-ago period to $353.5 million. However, adjusted gross margin contracted 40 basis points (bps) on a year-on-year basis to 86.6%, primarily on the workforce returning to offices and aggressive hiring.

Paycom’s adjusted EBITDA increased 27.9% year over year to $170.1 million. Adjusted EBITDA margin contracted 80 bps to 48.1%.

Balance Sheet & Cash Flow

Paycom exited the first quarter with cash and cash equivalents of $360.6 million compared with $278 million recorded in the previous quarter.

The company’s balance sheet comprises net long-term debt of $28.7 million compared with the previous quarter’s $29.2 million.

During first-quarter 2022, PAYC generated operating cash flow of $117.2 million.

Guidance

Paycom revised its guidance for full-year 2022. The company now forecasts 2022 revenues between $1.333 billion and $1.335 billion compared to the earlier estimate of $1.314-$1.316 billion.

Adjusted EBITDA is now projected to be $533-$535 million compared to the prior guided range of $524-$526 million.

For the second quarter of 2022, Paycom estimates revenues between $308 million and $310 million. Management projects adjusted EBITDA of $111-$113 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Paycom has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. It comes with little surprise Paycom has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Paycom is part of the Zacks Internet - Software industry. Over the past month, Aspen Technology (AZPN - Free Report) , a stock from the same industry, has gained 17.8%. The company reported its results for the quarter ended March 2022 more than a month ago.

Aspen Technology reported revenues of $187.75 million in the last reported quarter, representing a year-over-year change of +15.4%. EPS of $1.38 for the same period compares with $1.05 a year ago.

Aspen Technology is expected to post earnings of $2.18 per share for the current quarter, representing a year-over-year change of +42.5%. Over the last 30 days, the Zacks Consensus Estimate has changed +5%.

Aspen Technology has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.


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