This software provider’s earnings estimates were just raised by 16 analysts.
Paycom Software, Inc. (PAYC)
From Validea Hot List Newsletter
Strategy: P/E/Growth Investor
Based on: Peter Lynch
Paycom Software, Inc. (PAYC) is a provider of a cloud-based human capital management (HCM) software solution delivered as Software-as-a-Service (SaaS). The company provides functionality and data analytics that businesses need to manage the complete employment life cycle from recruitment to retirement. Paycom’s applications streamline client processes and provide clients and their employees with the ability to directly access and manage administrative processes, including applications that identify candidates, on-board employees, manage time and labor, administer payroll deductions and benefits, manage performance, terminate employees and administer post-termination health benefits, such as COBRA. The company’s solution allows clients to analyze employee information to make business decisions. Paycom’s HCM solution offers a range of applications, including talent acquisition, time and labor management, payroll, talent management and human resources (HR) management.
This methodology would consider PAYC a “fast-grower”.
P/E/GROWTH RATIO: PASS: The investor should examine the P/E (72.87) relative to the growth rate (201.85%), based on the average of the 3- and 5-year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for PAYC (0.36) is very favorable.
INVENTORY TO SALES: PASS: When inventories increase faster than sales, it is a red flag. However, an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for PAYC was 0.49% last year, while for this year it is 0.21%. Since inventory to sales has decreased from last year by -0.28%, PAYC passes this test.
TOTAL DEBT/EQUITY RATIO: PASS: This methodology would consider the Debt/Equity ratio for PAYC (26.07%) to be acceptable (equity is three to ten times debt). This ratio is one quick way to determine the financial strength of the company.
John Reese, Validea Hot List Newsletter, www.validea.com, 877-439-0506, February 9, 2018