PAYCOM SOFTWARE INC (NYSE:PAYC) – A Strong Contender for Quality Investors

PAYCOM SOFTWARE INC (NYSE:PAYC) stands out as a potential candidate for quality investors, based on our Caviar Cruise screening methodology. The company demonstrates strong financial health, profitability, and growth, aligning with key criteria for long-term investment. Below, we examine why PAYC fits the profile of a quality stock.

Key Strengths of PAYCOM SOFTWARE INC

• High Return on Invested Capital (ROIC): PAYC reports an ROIC (excluding cash and goodwill) of 27.09%, well above the 15% threshold for quality stocks. This indicates efficient use of capital to generate profits.
• Strong Revenue and EBIT Growth: Over the past five years, revenue has grown at an annualized rate of 8.20%, while EBIT growth has been even stronger at 22.90%, signaling improving profitability.
• Zero Debt: The company has no outstanding debt, with a Debt/Free Cash Flow ratio of 0, reflecting a strong balance sheet and financial flexibility.
• Profit Quality: PAYC’s five-year average profit quality stands at 84.82%, showing that a significant portion of net income converts to free cash flow.
• Margins and Efficiency: Operating margins are robust at 27.88%, and the company outperforms most peers in profitability metrics.

Fundamental Analysis Summary

Our fundamental report assigns PAYC a score of 7 out of 10, with high marks for profitability and financial health. Key takeaways:

• Profitability: Excellent margins (Gross Margin: 82.20%, Operating Margin: 27.88%) and strong returns (ROE: 22.96%, ROA: 8.62%).
• Valuation: Currently priced at a P/E of 30.59, which is above industry averages, but justified by strong growth and profitability.
• Growth Outlook: Analysts expect continued revenue growth of 8.20% and EPS growth of 10.16% annually.

For investors seeking high-quality businesses with sustainable growth, PAYC presents a compelling case.

Our Caviar Cruise screener lists more quality stocks and is updated regularly.

Disclaimer

This is not investment advice. Always conduct your own research before making investment decisions.