Why is Paycom (PAYC) down 4.7% since its last earnings report?

A month has passed since Paycom Software’s (PAYC) last earnings report. Shares have lost about 4.7% in that time, underperforming 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 company’s most recent earnings report in order to better understand the important catalysts.

Paycom’s first-quarter earnings and revenues beat estimates

Paycom reported first-quarter 2024 earnings, with both the top and bottom lines surpassing the Zacks Consensus Estimate and improving year over year.

The online payroll and HR technology provider reported first-quarter non-GAAP earnings of $2.59 per share, beating the Zacks Consensus Estimate of $2.43. Financial results improved by 5.28% from $2.46 per share recorded in the same quarter last year.

Paycom reported revenue of $499.9 million, topping the consensus estimate of $495.9 million. Year-over-year, revenues increased by 10.7%. Revenues also exceeded management’s forecast of USD 494-497 million, which was mainly due to the acquisition of new logos.

Quarter in detail

Paycom’s recurring revenue (representing 98.4% of total revenue) increased 9.7% to $491.9 million in the first quarter. Our estimate for the company’s recurring revenue was $488.4 million.

The company’s revenue from the Implementation and Other segment increased to $7.98 million from $7.2 million in the year-ago quarter and represented 1.6% of total sales. We estimated our segment revenues at $7.7 million.

Adjusted gross profit increased 9.12% from the year-ago period to $424.2 million. However, adjusted gross margin declined 120 basis points (bps) year-over-year to 84.9%.

Paycom’s adjusted EBITDA increased 4.1% year over year to $229.5 million. Adjusted EBITDA margin decreased 290 basis points to 45.9%.

Balance sheet and cash flow

Paycom ended the first quarter with cash and cash equivalents of $371.3 million, compared to $294 million reported in the prior quarter. As at March 31, 2024, the Company had no debt, as at the end of 2023 it had repaid all long-term debt.

In the first quarter of 2024, PAYC generated operating cash flow of approximately $148.6 million, paid a dividend of $21.2 million and repurchased $3.1 million of common stock.

As of March 31, 2024, the company had $796 million remaining under the buyout authorization. Paycom’s board of directors has approved an upcoming quarterly dividend of 37.5 cents per share, payable in mid-June 2024.

Conductivity

For the second quarter of 2024, Paycom forecasts revenue in the range of $434 million to $438 million and adjusted EBITDA of $151 million to $155 million.

For 2024, PAYC forecasts revenue in the range of $1.860 million to $1.885 billion and expects adjusted EBITDA in the range of $720 million to $730 million.

How have estimates changed since then?

It turns out that the estimate review has been trending downward over the past month.

VGM results

Right now, Paycom has a solid Growth Score of B, but its Momentum Score is doing slightly better at A. However, the stock is rated D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has a Total VGM Score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Paycom carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Paycom belongs to the Zacks Internet – Software industry. Another stock in the same industry, Pinterest (PINS), has gained 2.2% over the past month. More than a month has passed since the company announced its results for the quarter ended March 2024.

Pinterest reported revenue of $739.98 million in its most recent quarter, representing a +22.8% year-over-year change. EPS of $0.20 for the same period compared to $0.08 a year ago.

Pinterest is expected to post earnings per share of $0.28 for the current quarter, which would represent a year-over-year change of +33.3%. The Zacks Consensus Estimate has moved +25% over the last 30 days.

The overall direction and magnitude of estimate revisions translates into a Zacks Rank #3 (Hold) for Pinterest. The stock also has a VGM Rating of C.

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