Paycom Software Inc (NYSE:PAYC) Stands Out as a Top Pick in the Caviar Cruise Quality Stock Screen

The Caviar Cruise stock screen is built to find high-quality companies ideal for long-term investment, focusing on firms with steady revenue and profit growth, solid returns on invested capital, reasonable debt levels, and reliable earnings. Based on quality investing principles, this approach highlights businesses with lasting competitive edges, efficient operations, and the capacity to produce strong cash flows. The screen selects companies with at least 5% yearly revenue and EBIT growth, better profitability measures, and a return on invested capital (ROIC) above 15%, along with other factors.

Paycom Software Inc (NYSE:PAYC) stands out as a top pick under this strategy, meeting many of the key standards quality investors look for.

Key Advantages of Paycom Software for Quality Investors

1. Solid Revenue and EBIT Growth
Paycom has achieved a 5-year revenue compound annual growth rate (CAGR) of 7.06%, exceeding the Caviar Cruise screen’s 5% minimum. Even more notable, its EBIT growth over the same period is 22.9%, showing not just revenue growth but also major gains in operational efficiency. This matches the screen’s rule that EBIT growth should exceed revenue growth, a sign of pricing strength and scale benefits.

2. Outstanding Return on Invested Capital (ROIC)
A key measure in quality investing, ROIC tracks how well a company earns profits from its capital investments. Paycom’s ROIC (excluding cash, goodwill, and intangibles) is 27.09%, far above the 15% target. This indicates the company uses capital effectively, supporting its status as a high-quality business with lasting competitive strengths.

3. Low Debt and Strong Cash Flow Conversion
Paycom has no debt, a rare trait that removes solvency risks and provides financial flexibility. Its 5-year average profit quality, measured as free cash flow to net income, is 84.8%, well above the 75% benchmark. This shows earnings are turning into actual cash rather than being tied to accounting adjustments or unsustainable spending.

4. High and Growing Profit Margins
The company’s operating margin of 27.9% and gross margin of 82.2% rank among the best in its industry, reflecting strong pricing control and cost efficiency. These figures have also increased over time, a positive sign for quality investors looking for businesses that can boost profitability as they grow.

Fundamental Analysis Summary

According to Chartmill’s fundamental report, Paycom scores a 7 out of 10, with especially high ratings for profitability (9/10) and financial health (8/10). The report notes its industry-leading margins, steady earnings growth, and debt-free balance sheet as major strengths. While the stock trades at a higher valuation (P/E of 26.4), this is supported by its better returns and growth path compared to competitors.

Why These Metrics Are Important for Quality Investors

The Caviar Cruise method favors companies that can maintain growth without heavy borrowing, turn profits into cash consistently, and reinvest capital at high returns. Paycom’s performance in these areas, along with its leading role in cloud-based human capital management, makes it a strong choice for investors seeking stable, high-quality businesses.

For those wanting to discover more companies that fit the Caviar Cruise standards, the full screen results are available here.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research or consult a financial advisor before making decisions.