A Hiccup In Business But Still Growing
If you were concerned that Paycom Software (NYSE:PAYC) would experience some pain due to the COVID-19 pandemic you’d be right. If you thought it would have a negative impact on the company’s growth you’d also be right, but the company is still growing. While the pandemic did have an impact on the company it was only to slow growth, but not for long.
You see, what this company has going for it twofold. On the one hand, it is a handy web-based tool that employers can use to manage their labor forces (from acquisition to retirement, as they say) while on the other adoption of tech is on the rise.
Basically, the company’s business is supported not only by the work-from-home trend but by an acceleration of technological adoption spurred by the pandemic. All those employers who have yet to turn to technology are finding it increasingly important to do so and Paycom Software is an end-to-end solution. Once set up, managers and employees can do just about anything they need relating to employment short of their actual job duties using a handy dandy little app.
Paycom Software Revenue Grows 7.3%
On the top-line, Paycom Software’s revenue grew more than 7.25%. The only bad in this number is that it fell short of consensus by about 1.0% and led to some weakness in the after-hours market. On the bottom line, Adjusted EPS was in line with expectations while GAAP beat by a penny proving the company’s ability to deliver profits even when revenue is under pressure.
Looking forward, the company expects the third quarter to be comparable to the 2nd. Revenue should grow about 9% to 10% while EPS contracts about 20%. The contraction in earnings is not nice to see but won’t last long. While the company’s footprint is growing, earnings from existing clients are under pressure from high levels of unemployment and record low-interest rates.
“As expected our second-quarter results were impacted by the headwinds we outlined in our last call, namely the impact of unemployment across our current client base due to the pandemic and a 150 basis point cut in interest rates in March … Despite these headwinds, we continue to see very strong lead volume and new business sales achievements, which have set us up very well for the future. Q2 revenue and adjusted EBITDA came in at $181.6 and $61.2 million respectively.”
Longer-term, the 2nd quarter and 3rd quarter earnings weakness will be a mere hiccup. The consensus for the fourth quarter is for flat to slightly higher EPS with an acceleration of growth in 2020. The consensus for 2020 EPS growth is near 30%, more than enough to offset the -5% induced by the pandemic this year. The two-year outlook, from the pre to the post-COVID environments, helps put things into perspective. For PAYC that means revenue growth in the range of 35% and EPS growth in the range of 25%.
Paycom Software Technical Outlook: This Looks Like A Good Time To Buy
Shares of Paycom Software made a nice rebound from their lows but started showing some weakness a few weeks ago. The move below the short-term moving average was likely caused by a rise in short-selling that had the ratio sitting near 5% right before the earnings release. The short-sellers were right to worry but results have proved them wrong. Now, with a mild short-covering rally pushing shares up by nearly 5% it looks like a good time to start buying.
Share prices have put in a small bottom at the $280 level that is being confirmed by today’s move. The candle is a nice green one so far and it’s moving above the EMA which is a bullish move. The indicators are likewise showing bullish crossovers and low in their ranges, which I find to be very bullish. All in all, I have to say this looks like a fairly strong technical buy. There is a chance for some resistance in the $325 region but, once cleared, this stock is likely to keep rising over the next few years.
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6 Stocks to Help You Profit Off the Coronavirus PPE Boom
Every major global event brings with it changes to our national lexicon. Before the Covid-19 pandemic, few Americans knew what the initials PPE stood for. Today, virtually anyone knows that PPE stands for personal protective equipment.
At the onset of the mitigation policies, the goal of flattening the curve was being done to prevent our health care system from becoming overwhelmed. Part of that concern stemmed from a shortage of personal protective equipment. These are the masks, gloves, goggles and gowns that help protect medical workers against viral or bacterial infections.
As the novel coronavirus became labeled a global pandemic, the global mantra became to “flatten the curve” in an effort to prevent our healthcare system from being overwhelmed.
The United States is being referred to as being on a war time footing. Manufacturers that were already producing PPE have significantly ramped up capacity. And many companies are converting their excess manufacturing capacity to produce personal protective equipment.
In fairness, this may only be a reason for some of these companies to “keep the lights on” right now. But many of these companies have a good story to tell. And it’s that story that can make them solid investments in the future.
View the "6 Stocks to Help You Profit Off the Coronavirus PPE Boom".