Why Shares of Paycom Soared This Week

Shares of human capital management (HCM) software provider Paycom Software (NYSE: PAYC) are up 28% this week as of 1:40 p.m. ET Thursday, according to data provided by S&P Global Market Intelligence.

Paycom reported third-quarter earnings, beating analysts' expectations, growing revenue by 11% and offering improved guidance for the remainder of 2024. Most importantly, however, Paycom hinted that its ongoing research and development (R&D) efforts on automation-focused solutions may be starting to pay dividends.

Paycom's automation focus

Powered by offerings like Beti, which allows employees to do their own payroll, and Gone, the industry's first automated time-off request solution, Paycom is laser-focused on automating as much of the HCM industry as possible.

Highlighting the power of these solutions, one new customer using Beti has already reduced its payroll processing by 85%. Meanwhile, one study found that Paycom's Gone offering saved clients an estimated five weeks of work hours across its accounting, finance, and HR divisions.

Paycom's leading net promoter score rose another 24 points in Q3, remaining a far more beloved provider than its peers ADP, Workday, and Paychex.

Best yet for investors, despite increasing its ratio of research and development (R&D) to revenue from 2% to 12% over the last decade as it creates new automated solutions, Paycom's free-cash-flow margin of 21% remains top-tier.

CEO and founder Chad Richison explained that September was Paycom's strongest sales month ever, and the company's double-digit revenue growth rate from Q3 could continue. Still only holding a market share of less than 5% within its niche, the future looks bright for Paycom as businesses around the world look to continue streamlining their HCM processes.

Should you invest $1,000 in Paycom Software right now?

Before you buy stock in Paycom Software, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Paycom Software wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $853,860!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of October 28, 2024

Josh Kohn-Lindquist has positions in Paycom Software. The Motley Fool has positions in and recommends Paycom Software and Workday. The Motley Fool has a disclosure policy.