Top Picks 2020: Paycom Software (PAYC)

01/15/2020 5:00 am EST

Focus: TECHNOLOGY

Eddy Elfenbein

Editor, Growth Stock Advisor

The job at Paycom Software (PAYC) is to make human-resources departments more manageable — and this isn’t so easy in the modern business climate, suggests Eddy Elfenbein, editor of Growth Stock Advisor.

HR departments have to deal with lots of government regulations, on top of needs specific to their industries. That’s not so difficult for a large corporation, but the HR requirements for a small start-up can be a major headache. That’s where Paycom — our top aggressive stock for 2020 — comes in.

Paycom describes itself as a “leading provider of comprehensive, cloud-based human-capital management solutions delivered as software as a service.” The company makes and sells software that lets companies easily hire, manage, train, and most importantly, pay their employees.

The advantage that Paycom brings is that its software centralizes the whole process. For example, consider the process of finding a new employee. This is a major decision for any young company. Paycom can help with every step of the process. That includes tracking interviews and background checks.

Once a new employee joins up, there’s more paperwork to deal with. The employee has to make decisions regarding health insurance and retirement savings. On top of that, there’s on-board training. Paycom streamlines the entire process. This saves a company money, and, just as importantly, it saves time.

Paycom currently has over 23,500 clients, and they’re very popular with their clients. The company’s annual retention rate consistently exceeds 90%. Even after a new employee joins, Paycom still helps. Its software helps manage sick and vacation days, as well as keeping track of training.

Paycom provides functionality and data analytics that businesses need to manage the complete employment lifecycle, from recruitment to retirement. Employees at customer firms love Paycom’s ease of use. Their software lets employees manage their own HR needs in the cloud, which reduces the administrative burden on employers and increases employee productivity.

The company was founded in 1998, and its IPO was five years ago. Paycom’s business has been growing at a rapid clip. Earnings-per-share has grown from 19 cents in to $2.67 per share in 2018. I think the company has a good shot at making $3.40 per share for 2019, then $4.30 per share in 2020 and $5.30 per share in 2021.

In October, the CEO said the company had a “particularly strong quarter.” Paycom reported earnings of 70 cents per share which was three cents more than estimates. Revenues rose 35% to $175 million. I’ll caution you that Paycom is not a value stock, but its growth potential is very strong.

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