Paycom Software (PAYC - Free Report) has been an investor favorite for quite some time as evident from its price momentum. The stock has gained 63% over the past year, substantially outperforming the 23.2% rally of the industry it belongs to.
Let’s delve deeper and take a look at the key aspects aiding the company’s performance.
Paycom provides cloud-based human capital management (HCM) software solutions delivered as Software-as-a-Service (SaaS) with functionality and data analytics to manage the complete employment lifecycle, from recruitment to retirement.
The company recently reported solid fourth-quarter 2017 results wherein the top and the bottom lines came ahead of the respective Zacks Consensus Estimate and also improved year over year. The year-over-over increase can be attributed to the addition of clients and product development initiatives. The company’s client retention rate, which has been hovering around 91% for almost six years in a row, is also a major positive.
Management is particularly optimistic about its sales and marketing initiatives, which are increasing its connection with the market and positively impacting the top line. In 2017, Paycom launched its application on Apple (AAPL - Free Report) App Store and Google (GOOGL - Free Report) Play Store. Additionally, the company received positive feedback on its first national television commercial.
Paycom’s senior sales personnel outperformed expectations, which boosted management’s confidence and the company announced a new sales office in Salt Lake City on the fourth-quarter 2017 conference call. This addition increased the sales team count to 46.
Though increased sales and marketing related investments tend to affect profitability, the headwinds will be partially offset by the company’s shift to ASC 606 Accounting Standard, effective Jan 1, 2018.
Previously, the company recognized commission related expenses in the quarter in which a contract was signed. Per the new standards, the commission expense will be recognized ratably over the tenure of a contract. This will lower sales and marketing expenses, which will boost margins.
We believe that the company is well poised to benefit from the momentum in the global SaaS market, which is expected to witness 4-year compound annual growth rate (CAGR) (2016–2020) of 18.4%, as predicted by Gartner. All these aspects justify this Zacks Rank#1 (Strong Buy) stock’s addition to investors’ portfolio.
Another Key Pick
Another top-ranked stock in the broader technology sector is Lam Research Corporation (LRCX - Free Report) , sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term EPS growth rate for Lam Research is projected to be 14.9%.
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