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Why Paycom Software Stock Climbed 20% in January

By John Ballard - Feb 7, 2020 at 1:00PM

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The stock is now officially part of the S&P 500 index as the company continues to report phenomenal operating results.

What happened

Shares of Paycom Software (PAYC 1.27%) gained 20.2% in value last month, according to data provided by S&P Global Market Intelligence. The cloud-based provider of human capital management has posted strong results lately, which has driven stellar returns for investors over the last year. 

Additionally, Paycom was added to the S&P 500 index in late January. This forced index funds to buy the stock, sending the shares to a new high toward the end of the month. 

Two women shaking hands in a conference room.

Image source: Getty Images.

So what

Paycom released its fourth-quarter earnings on Wednesday. Here are the highlights for the quarter: 

  • Revenue was $193.4 million, increasing by 29% year over year.
  • Net income came in at $180.6 million, up 41%.
  • Full-year non-GAAP earnings per share were $3.50, compared to $2.67.

The quarter capped off a year when revenue reached $738 million, climbing 30% over 2018. "We strengthened our position in the human capital management industry with new product innovations, unparalleled service and an unrelenting focus on adding value for our clients," CEO Chad Richison said. 

Now what

Richison sees more growth ahead. "Based on the strong momentum we are seeing, we believe we are well positioned to deliver an enviable combination of high revenue growth and high margins for years to come," he said. 

Paycom is continuing to win business across the industry. "Our employee usage message is resonating across the industry, and we continue to promote the benefits to our clients at striving for 100% direct data exchange scores over time," Richison explained during the fourth-quarter conference call. High direct data exchange scores imply that Paycom's clients are saving money and maintaining high customer satisfaction. 

Analysts expect the company to grow earnings by 24% on an annualized basis over the next five years. However, the shares have made investors nearly 10 times their money over the last five, and trade at a high valuation, which may limit the near-term upside for this growth stock

John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Paycom Software. The Motley Fool has a disclosure policy.

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Paycom Software, Inc. Stock Quote
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