Paycom Software Q3 Earnings: Is NYSE:PAYC Expensive at 120.5x Price/EPS?

in EARNINGS/INVESTING IDEAS by

Paycom Software, Inc. (NYSE:PAYC) is scheduled to report Q3 earnings results after markets close for trading on November 4, 2020.

The company is expected to report earnings of $0.56/share on revenue of $192.4 million. The consensus earnings per share (EPS) of $0.56/share is based on a poll of 15 analysts and represents a decline in eps of −20.5% over the same quarter last year, when the company reported earnings of $0.70/share.

The revenue forecast of $192.4 million based on a poll of 13 analysts implies a year-over-year (YoY) growth in revenue of 9.9%. Last year the company reported $175 million in revenue for the quarter.

Expected to report EPS contraction of −20.5% for Q3, 2020
Metric Expected Prior Year YoY Change
Revenue $192.38 $175.01 9.9%
EPS $0.56 $0.70 −20.5%

Earnings Call Trends

Historically, management has exceeded analyst expectations 7 out of the last 8 tracked quarters, and met expectations 1 quarter.

What are your expectations from Paycom Software, Inc. for earnings this quarter? Let us know in the comments!

Analyst Expected vs. Reported EPS
Quarter Expected Reported Surprise Result
Q2, 2020 $0.62 $0.62 0% Met
Q1, 2020 $1.26 $1.33 5.8% Beat
Q4, 2019 $0.77 $0.86 11.1% Beat
Q3, 2019 $0.67 $0.70 4.0% Beat
Q2, 2019 $0.70 $0.75 7.7% Beat
Q1, 2019 $1.11 $1.19 6.8% Beat
Q4, 2018 $0.56 $0.61 9.9% Beat
Q3, 2018 $0.51 $0.52 1.3% Beat

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report. After the last earnings report for the period ending June 30, 2020, the stock price reacted by increasing 4.8%.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
August 4, 2020 $288.08 $302.05 4.8% Increase
April 28, 2020 $226.10 $270 19.4% Increase
February 5, 2020 $337.74 $290.71 −13.9% Decline
October 29, 2019 $209.08 $213 1.9% Increase

The other question to consider is one of earnings manipulation. There is a lot of pressure on management each quarter to deliver on earnings expectations. The Beneish M-Score is a statistical model that provides some insight into whether the company might be manipulating earnings. With a Beneish M-Score of −0.69, the model suggests that the company is likely an earnings manipulator. A value of −0.69 implies a 24.4% chance of earnings manipulation.

Fundamentals And Technical Analysis

Paycom Software, Inc. is currently trading at $373.44/share, down −2.4% for the day. The company is trading at approximately 94.0% of its 52-week high of $397.51/share. The company’s stock price is up 23.6% since the last earnings report and down −0.7% over the previous week. The company’s 14 Day Relative Price Index (RSI) of 73.71 suggests the company is trading in technically overbought territory. The RSI is considered overbought when above 70 and oversold when below 30.


NYSE:PAYC Stock Price Chart
Source: Finbox

The current share price implies a price-to-earnings (P/E) multiple of 120.49 and a forward P/E multiple of 112.92.

Paycom Software, Inc.’s current share price also implies a price-to-book (P/B) multiple of 36.22. The following table summarizes some other key fundamental ratios:

Data as of October 28, 2020
Metric Value
Last Reported Fiscal Period Key FY2020.Q2
Period End Date June 30, 2020
Stock Price (Current) $373.44
P/E Ratio 120.5x
P/E Ratio (Fwd) 112.9x
PEG Ratio 9.7
Total Debt / Total Capital 0.2%
Levered Free Cash Flow $98.32 million
EV / EBITDA 82.8x

Finbox

Paycom Software, Inc. is a large-cap stock with a market capitalization of $22.045 billion and a total enterprise value of $21.985 billion. The company operates in the Information Technology sector and the Software industry.

Paycom Software, Inc. provides cloud-based human capital management (HCM) software service for small to mid-sized companies in the United States. It provides functionality and data analytics that businesses need to manage the employment life cycle from recruitment to retirement. The company’s HCM solution offers a suite of applications in the areas of talent acquisition, including applicant tracking, candidate tracker, background checks, on-boarding, e-verify, and tax credit services; and time and labor management, such as time and attendance, scheduling/schedule exchange, time-off requests, labor allocation, labor management reports/push reporting, and geofencing/geotracking. Its HCM solution also provides payroll applications comprising payroll and tax management, Paycom pay, expense management, mileage tracker/fixed and variable rates, garnishment management, and GL concierge applications; and talent management applications that include employee self-service, compensation budgeting, performance management, and Paycom learning and course content, as well as my analytics, which offer employment predictor reporting. In addition, the company’s HCM solution offers HR management applications comprising manager on-the-go that gives supervisors and managers the ability to perform a variety of tasks, such as approving time-off requests and expense reimbursements; direct data exchange; ask here, a tool for direct line of communication to ask work-related questions; document and checklist; government and compliance; benefits administration/benefits to carrier; COBRA administration; personnel action forms; surveys; and affordable care act applications. Paycom Software, Inc. was founded in 1998 and is headquartered in Oklahoma City, Oklahoma.

Expertise: financial modeling, mergers & acquisitions. Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights: - Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores. - Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets. Andy can be reached at andy@finbox.io or at +1 (516) 778-6257.

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