Why Is Paycom (PAYC) Down 2.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Paycom Software (PAYC). Shares have lost about 2.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Paycom due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Paycom Software Q4 Results Surpass Estimates

Paycom Software’s fourth-quarter 2019 non-GAAP earnings per share came in at 86 cents, which surpassed the Zacks Consensus Estimate of 77 cents and also grew 40.98% year over year.

Further, the company generated revenues of $193 million, which increased 29% from the year-earlier period and also outpaced the Zacks Consensus Estimate of $191 million.

Robust new business wins and the company’s high-margin recurring revenue business drove results.

The company is benefiting from its differentiated employee strategy, measurement capabilities and comprehensive product offering.

Paycom’s differentiated product offering, Direct Data Exchange, for all Paycom Software clients is boosting customer addition. Further, the latest launch of Ask Here and Manager on-the-Go, both focusing on greater employee usage and efficiency, is a tailwind.

Moreover, the company’s top line received a 30% year-over-year positive impact in recurring revenues of $724.4 million, which comprises 98% of the total revenue base.

Margins

Adjusted gross profit jumped 36.7% from the year-ago period to $165 million. The company’s adjusted gross margin expanded 100 basis points (bps) on a year-over-year basis to 85.3%.

Paycom Software’s adjusted EBITDA rose 36.7% year over year to $78.6 million. Adjusted EBITDA margin of 40.6% expanded 240 bps year over year.

Balance Sheet & Cash Flow

Paycom Software exited the fourth quarter with cash and cash equivalents of $133.7 million compared with $108.1 million in the sequential quarter.

The company’s balance sheet comprises long-term debt of $32.6 million compared with $33.1million sequentially.

Cash from operations was $47.8 million for the fourth quarter.

Guidance

For first-quarter 2020, Paycom Software expects revenues in the range of $240-$242 million.

Adjusted EBITDA is estimated in the band of $113-$115 million.

For 2020, the company envisions revenues within $911-$913 million.

Adjusted EBITDA is anticipated in the bracket of $384-$386 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Paycom has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Paycom has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.