Paycom (PAYC) Scales 52-Week High: What's Driving The Stock?

Shares of Paycom Software, Inc. (NYSE:PAYC) touched a new 52-week high of $72.80 during yesterday’s trading session, eventually closing at $70.35.

Notably, the stock has outperformed the Zacks categorized Internet - Software industry in the past year. Paycom shares surged 70.6% compared with market growth of 20%.

Paycom provides cloud-based human capital management (HCM) software solution delivered as Software-as-a-Service (SaaS) with functionality and data analytics to manage the complete employment lifecycle, from recruitment to retirement.

The company’s sustained focus on investing in SaaS technology and mobile applications has been driving its revenue. We believe that Paycom’s cloud-based solution has greater demand across a wide section of verticals. Larger companies have greater and more complex HCM needs and Paycom’s solution is evolving to serve them.

Growth of cloud computing has supported the company’s SaaS delivery model. According to IDC, the global SaaS market is expected to increase at a five-year compound annual growth rate (CAGR) (2014–2019) of 16%. With its SaaS-based applications, we believe that Paycom is well-positioned to lead the market for advanced human capital management and payroll software solutions.

Furthermore, revenue growth seems to be steady and has been positively impacted by higher recurring revenues and traction in cloud-based offerings. Notably, in the past three fiscals, its recurring revenues have grown at a CAGR of approximately 48%.

The company currently derives the majority of revenues from payroll processing. As per International Data Corporation’s (IDC), the U.S. market for payroll services will reach $17.7 billion in 2017 providing a tremendous growth prospect for the company.

Additionally, an impressive track record of exceeding the quarterly earnings expectations has kept investors confidence over the company’s longterm growth prospect. Notably, last month, the company had reported stellar results for the first quarter of fiscal 2017 wherein both the top line and bottom line not only came ahead of our expectations but also marked a significant year-over-year improvement.

The company’s growth momentum is likely to continue in the quarters ahead as evident from its impressive second-quarter revenue guidance as well as upbeat revenue outlook for fiscal 2017 provided during its last quarter’s earnings conference call.

Currently, Paycom carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in this industry include AppFolio, Inc. (NASDAQ:APPF) , Paylocity Holding Corp. (NASDAQ:PCTY) and Amaya Inc. (TO:AYA) . AppFolio and Paylocity sport Zacks Rank #1s (Strong Buy), while Amaya carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the trailing four quarters, AppFolio, Paylocity and Amaya delivered average positive earnings surprises of 75.33%, 66.97% and 9.11% respectively.

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