Why is Paycom (PAYC) down 14.7% since its last earnings report?

It’s been about a month since Paycom Software’s (PAYC) last earnings report. Shares have lost about 14.7% 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 Q4 earnings and revenues beat estimates and increased y/y

Paycom Software reported better-than-expected fourth-quarter 2021 earnings, with both the top and bottom lines exceeding the Zacks Consensus Estimate.

The online payroll and HR technology provider reported non-GAAP earnings of $1.11 per share, beating the Zacks Consensus Estimate of $1.08 per share. Financial results improved 32.1% from 84 cents per share recorded in the year-ago quarter.

In the fourth quarter of 2021, the company reported revenue of $285 million, topping the consensus estimate of $275.8 million and improving 29% year over year. This year-over-year growth was primarily the result of new customer additions and continued focus on cross-selling to existing customers.

Quarter in detail

Paycom’s recurring revenue (representing 98.3% of total revenue) increased 29.2% to $280 million in the fourth quarter.

Adjusted gross profit increased 26.8% from the prior-year period to $239.7 million. However, adjusted gross margin declined 140 basis points (bps) year-over-year to 84.1%, primarily as a result of employees returning to offices and aggressive hiring.

Paycom’s adjusted EBITDA increased 30.2% year over year to $109.6 million. Adjusted EBITDA margin increased 30 bps to 38.4%.

Balance sheet and cash flow

Paycom ended the fourth quarter with cash and cash equivalents of $278 million, compared to $230.9 million reported in the prior quarter.

The company’s balance sheet includes net long-term debt of $29.2 million, up from $27.8 million in the prior quarter.

For the full year 2021, it generated operating cash flow of $319.4 million.

The most important events of the whole year

Paycom reported revenue of $1.06 billion for full-year 2021, up 25.4% year-over-year. Recurring revenue increased 25.5% to $1.04 billion.

Non-GAAP diluted earnings were $4.48 per share, up 28.4% year-over-year.

Full-year 2021 adjusted EBITDA (representing 39.7% of revenues) increased 26.8% year-over-year to $419.3 million. Adjusted EBITDA margin increased 40 bps to 39.7%.

Conductivity

Paycom forecasts 2022 revenue of $1.314 billion to $1.316 billion. Adjusted EBITDA is expected to be $524 million to $526 million.

Paycom estimates first-quarter 2022 revenues of $342 million to $344 million. Management forecasts adjusted EBITDA of $161-163 million.

How have estimates changed since then?

It turns out that new estimates have been trending downward over the past month.

As a result of these changes, the consensus estimate moved by -6.24%.

VGM results

At this point, Paycom has a solid Growth Score of B, although well behind its Momentum Score of D. Following the exact same trajectory, the stock was rated a D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has a Total VGM Score of D. 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.

Want the latest recommendations from Zacks Investment Research? Today you can download the top 7 stocks for the next 30 days. Click to get this free report

Paycom Software, Inc. (PAYC): Free Inventory Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research