We ran a stock analysis for earnings growth and the Paycom (NYSE: PAYC) software passed with ease


The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies with no revenue, no profit, and a history of failure can successfully find investors. But as Peter Lynch said in One Up on Wall Street, “Long shots almost never pay off.” Loss-making companies are always in a race against time to achieve financial viability, so investors in these companies may take on more risk than they should.

So if this idea of ​​high risk and high reward doesn’t sit well with you, you might be more interested in profitable and growing businesses, like Paycom software (NYSE:PAYC). While that doesn’t necessarily mean it’s undervalued, the company’s profitability is enough to warrant some appreciation, especially if it’s growing.

Check out our latest analysis for Paycom Software

Paycom Software’s earnings per share increase

The market is a short-term voting machine, but a long-term weighing machine, so you would expect the stock price to eventually follow earnings per share (EPS) results. Therefore, there are many investors who like to buy shares in companies that grow EPS. Paycom Software succeeded in increasing EPS by 16% per year, over three years. This growth rate is quite good, assuming the company can sustain it.

It’s often helpful to look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another idea of ​​the quality of the company’s growth. The music to the ears of Paycom Software shareholders is that EBIT margins have increased from 22% to 25% in the past 12 months and revenues are also on an upward trend. These are two great indicators to check for potential growth.

In the table below, you can see how the company has increased its profits and revenue over time. To see the actual numbers, click on the chart.

NYSE: PAYC Earnings and Revenue History June 22, 2022

In investing, as in life, the future matters more than the past. So why not check this out free interactive visualization of Paycom Software provide profits?

Are Paycom Software insiders aligned with all shareholders?

We wouldn’t expect to see insiders owning a large percentage of a $16 billion company like Paycom Software. But we are reassured by the fact that they are investors in the company. Notably, they hold an enviable stake in the company, worth US$2.5 billion. This represents 16% of the shares of the company. What directs the decision-making process of management towards a path that benefits shareholders the most. Very encouraging.

It means a lot to see insiders invested in the company, but shareholders may wonder whether compensation policies are in their best interest. A brief analysis of CEO compensation suggests they are. Our analysis found that the median total compensation for CEOs of companies like Paycom Software, with market caps above $8.0 billion, is around $14 million.

The CEO of Paycom Software earned total compensation of US$3.0 million in the year to December 2021. First impressions seem to point to a shareholder-friendly compensation policy. CEO compensation isn’t the most important aspect of a company to consider, but when it’s reasonable, it gives a little more confidence that executives are looking out for shareholders’ interests. It can also be a sign of good governance more generally.

Should you add Paycom software to your watchlist?

An important and encouraging feature of Paycom Software is that it increases its profits. EPS Growth may be Paycom Software’s catchy headline, but there’s more to make shareholders happy. Boasting both a modest CEO salary and considerable insider ownership, you’d say this one deserves at least the watch list. Before proceeding to the next step, you must know the 2 warning signs for Paycom software that we discovered.

There is always the possibility of doing well by buying stocks that are not increased income and not have insiders buying stocks. But for those who consider these measures important, we encourage you to check out the companies that do have these characteristics. You can access a free list of them here.

Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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