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Here's Why Paycom (PAYC) Is a Promising Investment Bet Now
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Paycom Software (PAYC - Free Report) is one stock investors should consider adding to their portfolio to benefit from its upside potential.
Tech stocks have made a remarkable comeback in the first half of 2023 after a massive sell-off in 2022 on recession concerns, inflationary pressure, increased oil prices and higher interest rates. With a year-to-date (YTD) rise of 31.8%, the tech-laden Nasdaq Composite has outperformed The Dow Jones Industrial Average and the S&P 500 index’s increase of 3.4% and 15.8%, respectively.
Technology stocks have more than 50% of weightage in the Nasdaq Composite index. Technology Select Sector SPDR (XLK), the most important component of the broad market index, has returned 40% YTD.
However, Paycom is among such stocks that have been left behind this year’s tech rally. Therefore, considering the company’s impressive growth profile and attractive valuation, we believe it is the right time to invest in the stock.
Though Paycom’s stock has risen 2.5% YTD, it still trades way lower than the 52-week high, which reflects its potential to go upward. The stock’s closing price of $317.89 on Jul 5 is 21.1% lower than the 52-week high of $402.78 attained on Aug 15, 2022.
Moreover, Paycom currently trades at an attractive valuation multiple. The stock trades at a one-year forward price-to-earnings multiple of 37.36X compared with its five-year average of 138.61X. It also trades at a discount to the Zacks Internet Software industry’s one-year forward price-to-earnings multiple of 41.00X.
Additionally, amid the ongoing macroeconomic headwinds and geopolitical issues, it is prudent to pick solid growth companies as these are financially stable, accruing profits in established markets. These stocks, with their solid fundamentals, allow investors to hedge their funds from any economic downturn.
Apart from having solid fundamentals, Paycom has the favorable combination of a Growth Score of A and a Zacks Rank #2 (Buy).
Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or #2 and a Growth Score of A or B offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Paycom has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 10.8%. Additionally, PAYC stock has an impressive long-term earnings per share growth expectation of 25%.
The Zacks Consensus Estimate of $7.68 per share for 2023 earnings suggests growth of approximately 25.1% from the year-ago period. For 2024, the consensus mark for earnings is pegged at $9.29, indicating a year-over-year increase of 21%.
Fundamental Drivers
Paycom offers an end-to-end software-as-a-service (SaaS) HCM solution that minimizes data integrity issues across applications. Paycom’s SaaS-based solution reduces the time, risk and headcount related to installing and maintaining applications for on-premise products.
We are positive about Paycom’s long-term prospects as the company continues to invest in SaaS technology and mobile applications by acquiring SaaS-based businesses. We also believe that its cloud-based solution has greater demand across a wide section of verticals. Larger companies have greater and more complex HCM needs, and Paycom’s solution is evolving to serve them.
The growth of cloud computing has supported the SaaS delivery model. Per the latest Fortune Business Insights report, the global SaaS market is expected to grow from $237.48 billion in 2022 to $908.21 billion by 2030, witnessing a CAGR of 18.7% during the 2022-2028 forecast period. With its SaaS-based applications, we think that Paycom is well-positioned to lead the market.
Paycom’s latest reported financial results for the first quarter of 2023 reflect continued growth despite disruptions caused by macroeconomic headwinds and geopolitical issues. Its revenues increased, mainly driven by new client additions and a continued focus on cross-selling to existing clients. Its differentiated employee strategy, measurement capabilities and comprehensive product offerings are helping it win new customers.
Additionally, Paycom’s decision of starting a dividend payment policy appears even more beneficial to shareholders. Concurrent with its first-quarter 2023 financial result announcement in early May, Paycom revealed that its board of directors approved a cash dividend, marking the company’s first-ever dividend policy. PAYC intends to pay out a quarterly cash dividend of 37.5 cents per share or $1.50 per share annually.
Paycom’s strong balance sheet and cash flow provide it with the financial flexibility to undertake shareholder-friendly initiatives and invest further to expand in newer markets. The company exited the first quarter with cash and cash equivalents of $505.6 million and net long-term debt of mere $29 million.
Paycom boasts a sturdy cash flow-generating ability. The company had generated operating cash flow of $365 million in 2022 compared with $319 million in 2021 and $227 million in 2020. In the first quarter of 2023, the company generated operating cash flow of $146 million. The robust cash flow enables it to serve debt efficiently and enhance shareholder wealth through share repurchases.
In 2022, the company repurchased shares worth approximately $95 million. As of Mar 31, 2023, Paycom had $1.1 billion remaining under its current share repurchase authorization.
Other Stocks to Consider
Some other top-ranked stocks from the broader technology sector are Salesforce (CRM - Free Report) , Meta Platforms (META - Free Report) and Blackbaud (BLKB - Free Report) . Salesforce and Meta each sport a Zacks Rank #1, while Blackbaud carries a Zacks Rank #2.
The Zacks Consensus Estimate for Salesforce's second-quarter fiscal 2024 earnings has been revised upward by a penny to $1.90 per share for the past 30 days. For fiscal 2024, earnings estimates have moved upward by a couple of cents to $7.44 per share in the past 30 days.
Salesforce's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 15.5%. Shares of CRM have soared 60.1% YTD.
The Zacks Consensus Estimate for Meta's second-quarter 2023 earnings has been revised 3 cents southward to $2.82 per share in the past 30 days. For 2023, earnings estimates have decreased by 10 cents to $11.94 per share in the past 30 days.
Meta’s earnings beat the Zacks Consensus Estimate twice in the preceding four quarters while missing the same on two occasions, the average surprise being 15.5%. Shares of META have surged 137.1% YTD.
The Zacks Consensus Estimate for Blackbaud’s second-quarter 2023 earnings has been revised by a couple of cents northward to 93 cents per share in the past 60 days. For 2023, earnings estimates have increased to $3.75 per share from $3.68 60 days ago.
Blackbaud's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 10.4%. Shares of BLKB have rallied 16.8 % YTD.
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Here's Why Paycom (PAYC) Is a Promising Investment Bet Now
Paycom Software (PAYC - Free Report) is one stock investors should consider adding to their portfolio to benefit from its upside potential.
Tech stocks have made a remarkable comeback in the first half of 2023 after a massive sell-off in 2022 on recession concerns, inflationary pressure, increased oil prices and higher interest rates. With a year-to-date (YTD) rise of 31.8%, the tech-laden Nasdaq Composite has outperformed The Dow Jones Industrial Average and the S&P 500 index’s increase of 3.4% and 15.8%, respectively.
Technology stocks have more than 50% of weightage in the Nasdaq Composite index. Technology Select Sector SPDR (XLK), the most important component of the broad market index, has returned 40% YTD.
However, Paycom is among such stocks that have been left behind this year’s tech rally. Therefore, considering the company’s impressive growth profile and attractive valuation, we believe it is the right time to invest in the stock.
Paycom Software, Inc. Price and Consensus
Paycom Software, Inc. price-consensus-chart | Paycom Software, Inc. Quote
Why Should You Bet on PAYC Stock?
Though Paycom’s stock has risen 2.5% YTD, it still trades way lower than the 52-week high, which reflects its potential to go upward. The stock’s closing price of $317.89 on Jul 5 is 21.1% lower than the 52-week high of $402.78 attained on Aug 15, 2022.
Moreover, Paycom currently trades at an attractive valuation multiple. The stock trades at a one-year forward price-to-earnings multiple of 37.36X compared with its five-year average of 138.61X. It also trades at a discount to the Zacks Internet Software industry’s one-year forward price-to-earnings multiple of 41.00X.
Additionally, amid the ongoing macroeconomic headwinds and geopolitical issues, it is prudent to pick solid growth companies as these are financially stable, accruing profits in established markets. These stocks, with their solid fundamentals, allow investors to hedge their funds from any economic downturn.
Apart from having solid fundamentals, Paycom has the favorable combination of a Growth Score of A and a Zacks Rank #2 (Buy).
Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or #2 and a Growth Score of A or B offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Paycom has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 10.8%. Additionally, PAYC stock has an impressive long-term earnings per share growth expectation of 25%.
The Zacks Consensus Estimate of $7.68 per share for 2023 earnings suggests growth of approximately 25.1% from the year-ago period. For 2024, the consensus mark for earnings is pegged at $9.29, indicating a year-over-year increase of 21%.
Fundamental Drivers
Paycom offers an end-to-end software-as-a-service (SaaS) HCM solution that minimizes data integrity issues across applications. Paycom’s SaaS-based solution reduces the time, risk and headcount related to installing and maintaining applications for on-premise products.
We are positive about Paycom’s long-term prospects as the company continues to invest in SaaS technology and mobile applications by acquiring SaaS-based businesses. We also believe that its cloud-based solution has greater demand across a wide section of verticals. Larger companies have greater and more complex HCM needs, and Paycom’s solution is evolving to serve them.
The growth of cloud computing has supported the SaaS delivery model. Per the latest Fortune Business Insights report, the global SaaS market is expected to grow from $237.48 billion in 2022 to $908.21 billion by 2030, witnessing a CAGR of 18.7% during the 2022-2028 forecast period. With its SaaS-based applications, we think that Paycom is well-positioned to lead the market.
Paycom’s latest reported financial results for the first quarter of 2023 reflect continued growth despite disruptions caused by macroeconomic headwinds and geopolitical issues. Its revenues increased, mainly driven by new client additions and a continued focus on cross-selling to existing clients. Its differentiated employee strategy, measurement capabilities and comprehensive product offerings are helping it win new customers.
Additionally, Paycom’s decision of starting a dividend payment policy appears even more beneficial to shareholders. Concurrent with its first-quarter 2023 financial result announcement in early May, Paycom revealed that its board of directors approved a cash dividend, marking the company’s first-ever dividend policy. PAYC intends to pay out a quarterly cash dividend of 37.5 cents per share or $1.50 per share annually.
Paycom’s strong balance sheet and cash flow provide it with the financial flexibility to undertake shareholder-friendly initiatives and invest further to expand in newer markets. The company exited the first quarter with cash and cash equivalents of $505.6 million and net long-term debt of mere $29 million.
Paycom boasts a sturdy cash flow-generating ability. The company had generated operating cash flow of $365 million in 2022 compared with $319 million in 2021 and $227 million in 2020. In the first quarter of 2023, the company generated operating cash flow of $146 million. The robust cash flow enables it to serve debt efficiently and enhance shareholder wealth through share repurchases.
In 2022, the company repurchased shares worth approximately $95 million. As of Mar 31, 2023, Paycom had $1.1 billion remaining under its current share repurchase authorization.
Other Stocks to Consider
Some other top-ranked stocks from the broader technology sector are Salesforce (CRM - Free Report) , Meta Platforms (META - Free Report) and Blackbaud (BLKB - Free Report) . Salesforce and Meta each sport a Zacks Rank #1, while Blackbaud carries a Zacks Rank #2.
The Zacks Consensus Estimate for Salesforce's second-quarter fiscal 2024 earnings has been revised upward by a penny to $1.90 per share for the past 30 days. For fiscal 2024, earnings estimates have moved upward by a couple of cents to $7.44 per share in the past 30 days.
Salesforce's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 15.5%. Shares of CRM have soared 60.1% YTD.
The Zacks Consensus Estimate for Meta's second-quarter 2023 earnings has been revised 3 cents southward to $2.82 per share in the past 30 days. For 2023, earnings estimates have decreased by 10 cents to $11.94 per share in the past 30 days.
Meta’s earnings beat the Zacks Consensus Estimate twice in the preceding four quarters while missing the same on two occasions, the average surprise being 15.5%. Shares of META have surged 137.1% YTD.
The Zacks Consensus Estimate for Blackbaud’s second-quarter 2023 earnings has been revised by a couple of cents northward to 93 cents per share in the past 60 days. For 2023, earnings estimates have increased to $3.75 per share from $3.68 60 days ago.
Blackbaud's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 10.4%. Shares of BLKB have rallied 16.8 % YTD.