Paycom Software (PAYC) — my aggressive idea for 2020 — calls itself a “human capital management” applications firm, explains growth and income expert Jim Woods, editor of Successful Investing.
And that is an interesting and accurate description of what this company does. I say that, because Paycom’s full suite of web-delivered software includes features such as talent acquisition, time and labor management, payroll, talent management, and HR management.
These are the tasks that companies dislike dealing with, and that always represents a big cost to the bottom line. But now that there are cloud-based software solutions to these tasks, provided here by Paycom, companies are largely liberated from the time suck of time sheets, scheduling vacations, payroll, etc.
One thing I love about PAYC is that 99% of its revenue is recurring, meaning companies are billed quarterly or monthly for Paycom services, and that keeps a steady and growing revenue stream coming in to fuel earnings and future growth.
And that growth has indeed been impressive, as Paycom has a 62% annual earnings per share growth rate over the past three years, which is a most-impressive metric.
The stock shined brightly in 2019, more than doubling its value (up 114%). Yet despite that big gain, I suspect much more to come from PAYC.
One big reason why is that in 2020, I suspect that companies are going to increase their capital spending. Now that the trade tensions between the United States and China have calmed significantly, and now that the Federal Reserve has basically told us that there is very little likelihood of any interest rate hikes in the year ahead.
In that environment, companies can invest in the future with a lot more certainty than they had in 2019. That investment will, I suspect, include the embracing of HR solutions such as those offered by Paycom.
(Editor's note: Last year, Jim Woods selected Match Group (MTCH) as a top pick; the shares rose 94%. He now says, "The company announced in December that it would fully separate from parent and incubator company IAC/Corp. (IAC). In 2020, I expect more upside in MTCH.")
