Blowout quarterly results, eye-popping revenue growth and strong client retention have put Paycom Software (NYSE: PAYC) in a league of its own when compared with other technology stocks. The workforce management software company is leveraging advances in cloud computing to give traditional industry titans like Ceridian HCM Holding Inc. (NYSE: CDAY) and Automatic Data Processing Inc. (NASDAQ: ADP) a run for their money.
Scalable Solutions, Rapid Growth
How fast is Paycom growing? Last August, it cracked the fifth spot on Fortune magazine’s list of 100 fastest growing domestic and foreign publicly traded companies. Only Applied Optoelectronics (NASDAQ: AAOI), Supernus Pharmaceuticals (NASDAQ: SUPN), Stamps.com (Nasdaq: STMP) and Health Insurance Innovations (NASDAQ: HIIQ) ranked higher in terms of earnings per share growth, revenue growth, and total returns in the last three years.
The company’s latest quarterly report showed stellar revenue growth and earnings that handily exceeded analysts’ highest expectations. During the fourth quarter, Paycom’s revenues climbed 32% to $150.3 million, well ahead of forecasts calling for $144 million. Adjusted EBITDA surged 19% to $57.5 million, or $6 million higher than expected. Although non-GAAP net income declined 33% to $35.4 million, or $0.61 per share, it was 5 cents higher than the consensus estimate.
Paycom’s share price reflects its rapid growth. The stock doubled in the span of a year and has fully reversed its fourth-quarter slump to trade at new record highs. Since the start of 2019, PAYC has gained a whopping 43%, more than three times the rate of return for the S&P 500 Index and Nasdaq Composite.
PYC is also performing on par with Ceridian and both are well ahead of ADP in terms of stock performance.
Based on the company’s latest guidance, the stock has further room to appreciate. First-quarter revenue is expected to grow 27% and full-year sales are forecast to land between $710 million and $712 million. The latter implies 26% growth at the midpoint, which is $15 million higher than Wall Street’s previous forecast. Full-year EBITDA is expected to grow 20% to a range of $288 million to $290 million.
Since inception, Paycom has onboarded more than 17,000 clients in the United States alone. The company boasts a 92% retention rate for its existing customers thanks to its single database interface that allows human resource departments to manage everything from hiring to onboarding and up to retirement planning.
Paycom has identified another target it believes will help boost retention: help customers achieve 100% employee engagement. That means all data being inputted into Paycom software comes from employees and not HR departments. This “employee self-service” model minimizes the amount of work done by human resource departments. The launch of the Paycom mobile app makes it even easier for employees to input their own information directly into the cloud-based database.
To achieve its engagement target, Paycom has evolved its go-to-market strategy by expanding its regional offices. This means more sales representatives will be working directly with clients.
Cloud Market Size: 2008 – 2020
The cloud computing market is expected to top $159 billion in 2020, putting Paycom in one of the fastest growing technology industries. Within the cloud paradigm, Paycom is outperforming both peers and rivals, as evidenced by its history of above-target growth. With 2019 shaping up to be the company’s best year yet, there’s still plenty of market cap left to conquer.