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Ultimate Software: Investing in Human Capital

12/14/2018 5:00 am EST


Hilary Kramer

Editor, GameChanger Stocks

Ultimate Software Company (ULTI) provides a wide range of human capital management (HCM) software that helps human resources (HR) departments bring people together, explains growth stock expert Hilary Kramer, editor of GameChangers.

The company’s chief product is UltiPro, a comprehensive cloud-based solution designed to help manage the complete employee life cycle from recruitment to retirement, as well as facilitate employee engagement with their employers and each other.

In addition to standard procedures like talent acquisition and onboarding, payroll, HR management and compliance and benefits management, UltiPro offers decision-making tools and analytics. It also has capabilities for managers and employees that can be accessed outside of the office.

On the financial side, the company has enjoyed strong growth, which should continue well into the future. Revenues more than doubled from $410 million in 2013 to $941 million in 2017, and EPS grew from $1.60 to $3.84 over the same period.

Growth has continued through the first nine months of 2018, with revenues increasing 21% to $836 million and EPS growing 42% to $3.94 a share.

More importantly, the company surprised to the upside in its 2019 guidance. Its management now calls for gains of at least 21% in 2019, while reiterating its goal for $2.0 billion in revenues by 2021. That outlook implies 20% growth in 2020 and 2021, as well.

Management indicated on its earnings conference call that the company’s sales force is very confident about the future. At this level of growth, EPS of $10.00 per share by 2021, after $5.40 this year and $6.50 next year, is a possibility.

At approximately 40 times next year’s EPS and with strong growth visibility, ULTI remains attractive versus many of its cloud software peers, which sell for higher multiples with similar rates of growth. Continue to buy ULTI under $260. My target is $300.

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