Paycom (NYSE: PAYC) was added to the S&P 500 in January after the company’s stock price more than doubled in the past year, increasing its market cap to around $18 billion. After the announcement on January 22, the company’s share price jumped more than 4% in after-hours trading to $317 per share.
How Paycom got added to the S&P 500
Paycom was created in 1998 in Oklahoma City and is a provider of cloud-style payroll software. By 2014, the company was listed on the NYSE and beat rival Workday (NASDAQ: WDAY) into the benchmark index, despite having less than half of the market cap and one-fifth of the revenue.
This is because S&P Dow Jones Indices requires a company to achieve a full year of profitability before it can be added to the broader S&P Composite 1500. For example, Paycom has generated a net income of over $160 million in the past four quarters, while Workday has lost over $100 million a quarter for the past five periods. Another example is the e-commerce platform, Shopify (NYSE: SHOP), which is valued at nearly $54 billion but is yet to make a profit and therefore can’t be added to the S&P 500 index, with the minimum market cap required set at $8.2 billion.
Overall, being added to the Index saw the company’s shares rise by 1.2% in regular trading, to a record high of $303.28, before extending its rally after hours. Its 116% increase in 2019 outdid the S&P’s 500’s gain of nearly 29%.
Who is Paycom’s competition?
The latest news for Paycom comes just a few months after cloud seller ServiceNow (NYSE: NOW) was listed on the index and reflects the demand for subscription software. Before last year, Salesforce (NYSE: CRM) was the only modern cloud company on the Index, along with older names such as Adobe (NASDAQ: ADBE) and Autodesk (NASDAQ: ADSK).
Paycom has now replaced WellCare Health Plans, which was acquired by Centene. The company also has competition with Cornerstone OnDemand (NASDAQ: CSOD) and Ceridian (NYSE: CDAY).
Is Paycom’s business model sustainable?
Paycom’s business model is set up in a way that instead of customers only purchasing one-time for a software package, they rent cloud-based access to its human resources tools. Of last quarters $175 million in revenue, $171.4 million was recurring. This model gives the company’s investors a clear idea of how future revenue will be generated.
What’s Next for Paycom?
Paycom is due to report earnings for its fiscal fourth-quarter 2019 on Wednesday, February 5, 2020, after market close. According to Yahoo Finance, analysts are expecting the company to post earnings of 77 cents a share on revenue of just over $190 million. This would represent year-over-year growth of more than 42% and 26% respectively for Paycom.
The company will also report its full-year 2019 results on the same date, with analysts expecting year-over-year growth of roughly 30% to hit $734.7 million.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Paycom. Read our full disclosure policy here.
Written by Alsha Coppolina.
MyWallSt Contributor, Author at MyWallSt Blog
This article was written by one of our MyWallSt freelancers.