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Why Paycom Software Is Rising Today

By Brian Feroldi - Updated Mar 13, 2020 at 3:45PM

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Management thinks the stock is cheap, and it's getting aggressive while it can.

What happened

Paycom Software (PAYC -0.87%), a software-as-a-service provider focused on payroll and other human resources needs, is up 12% as of 3:30 p.m. EDT on Friday. The jump is likely linked to the huge rise in stocks today -- the S&P 500, Dow Jones Industrial, and Nasdaq are all up about 4% today -- but the company also announced that it has upsized its stock buyback program.

So what

Paycom announced yesterday that its board has increased and extended its stock repurchase plan.

The company stated that it now has the green light to buy back up to $250 million of its common stock on the open market between March 13, 2020, and March 12, 2022.

A man stacking coins in piles that grow taller

Image source: Getty Images.

Commenting on the authorization, CEO and founder Chad Richinson stated:

Today's increase in our repurchase program further underscores our confidence in the strength of our business and our long-term growth prospects, irrespective of macroeconomic factors that may affect our stock price from time to time. We remain focused on organic growth, and our profitable business model allows us to invest as required to achieve this goal. At the same time, our strong financial position and ability to generate significant cash flow afford us the opportunity to return value to our stockholders opportunistically through stock buybacks.

Traders are cheering the company's decision to get aggressive while its stock price is depressed. 

Now what

Paycom ended 2019 with $134 million in cash on its balance sheet and $33 million in debt, so the company doesn't have enough liquidity to complete the program all at once. However, in 2019, the company generated more than $131 million in free cash flow, and management expects revenue to grow about 23% in 2020, so it should be able to generate enough capital during the authorization window to complete the program. 

Paycom's stock has dropped more than 35% since its February highs, so it seems like a great time to get aggressive with a share repurchase program.

This news should give investors confidence that this growth stock still has a bright future ahead.

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Stocks Mentioned

Paycom Software, Inc. Stock Quote
Paycom Software, Inc.
$274.38 (-0.87%) $-2.41

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