Ultimate Software (ULTI) — our top pick for aggressive growth — his is a pure play on the outsourcing of traditional corporate culture as redundant functions converge in the computing cloud, suggests Hilary Kramer, a leading growth stock expert and editor of GameChangers.
We’re looking at human resources as a service here. ULTI manages the entire employee relationship from recruiting through orientation all the way to retirement.
The “land and expand” expansion model should be familiar from what we know works in the cloud: start with a basic or even free service level to open an account, then sell additional functionality once customers embrace the platform.
Land the enterprise, then expand. ULTI starts with the basic accounting-driven package, giving customers a state-of-the-art payroll and benefits program.
From there, what’s truly extraordinary is the analytics tools that ultimately add up to staffing-oriented artificial intelligence. An enterprise running the full suite can track all human resources to plan ahead, reduce waste and even make long-range hiring decisions on the go.
The basic program competes with existing payroll solutions in terms of price. The advanced features are sold on a monthly per-employee subscription basis, so when you’re looking at truly large organizations the recurring revenue adds up fast.
Applebee’s is a representative customer operating at this level: 10,000 employees, complex just-in-time staffing and payroll needs, rapid growth through acquisitions. The system scales with the customer. They’re overjoyed.
ULTI is also growing fast through acquisitions of its own as it consolidates scattered standalone applications into a single platform. The goal is to offer customers everything adjacent to the traditional human resources function, starving competitors and providing ammunition for the “expand” side of the sales conversation.
Sum up all the parts and ULTI is growing extremely fast. Revenue doubled between 2013 and 2017 and is still ramping up around 20% a year for the foreseeable future. Here at a $1 billion run rate, the company is in the sweet spot of scale, with earnings gains generally tracking at or above revenue.
As long as management resists the urge to roll up competitors in 2019, we could see every $1 added to the top line turn into $0.25 in profit. I’m tentatively looking for $10 EPS here by 2021, at which point the current valuation will be a little modest relative to growth. This will be a $300 stock unless a bigger rival takes it out first.
Subscribe to Hilary Kramer's GameChangers here…