Paycom Software, Inc. (NYSE:PAYC) came out with its annual results last week, and we wanted to see how the business is performing and what industry forecasters think of the company following this report. Paycom Software reported in line with analyst predictions, delivering revenues of US$1.7b and statutory earnings per share of US$5.88, suggesting the business is executing well and in line with its plan. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Taking into account the latest results, the most recent consensus for Paycom Software from 21 analysts is for revenues of US$1.87b in 2024. If met, it would imply a decent 11% increase on its revenue over the past 12 months. Statutory earnings per share are forecast to decrease 6.8% to US$5.62 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$1.87b and earnings per share (EPS) of US$5.62 in 2024. The consensus analysts don't seem to have seen anything in these results that would have changed their view on the business, given there's been no major change to their estimates.
The analysts reconfirmed their price target of US$203, showing that the business is executing well and in line with expectations. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Paycom Software, with the most bullish analyst valuing it at US$260 and the most bearish at US$160 per share. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that Paycom Software's revenue growth is expected to slow, with the forecast 11% annualised growth rate until the end of 2024 being well below the historical 21% p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 6.4% annually. Even after the forecast slowdown in growth, it seems obvious that Paycom Software is also expected to grow faster than the wider industry.
The Bottom Line
The most obvious conclusion is that there's been no major change in the business' prospects in recent times, with the analysts holding their earnings forecasts steady, in line with previous estimates. Happily, there were no major changes to revenue forecasts, with the business still expected to grow faster than the wider industry. The consensus price target held steady at US$203, with the latest estimates not enough to have an impact on their price targets.
With that in mind, we wouldn't be too quick to come to a conclusion on Paycom Software. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Paycom Software analysts - going out to 2026, and you can see them free on our platform here.
However, before you get too enthused, we've discovered 1 warning sign for Paycom Software that you should be aware of.
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