- Stock crashes 37% after-hours to four-year lows
- Lacklustre 2024 guidance spooks equity investors
- Self-inflicted problems can be remedied, say analysts
Prominent HR and payroll firm Paycom Software (PAYC:NYSE) took an absolute hammering in after-hours trading after reporting weaker-than-expected sales for the third quarter and offering lacklustre guidance for 2024.
The Oklahoma-based business reported earnings per share of $1.77, above the consensus $1.61, but revenue of $406 million missed $411 million projections, sparking a 37% after-hours share price rout. Worse still, Paycom sees fourth quarter revenue in the range of $420 million to $425 million, leading to a full year (31 Dec) $1.68 billion outcome, below previous estimates.
Analysts were looking for Q4 revenue of $453.3 million and full year revenue of $1.72 billion. That the growth softness looks destined to hurt 2024 performance has investors running for the hills. The firm’s projected revenue growth for 2024 is estimated at a modest 10% to 12%, considerably lower than the previously expected 21%.
STOCK STARES INTO ABYSS
Paycom stock crashed 37% post the trading session to $153.28. Coupled with weak guidance in August’s Q2 results, it means Paycom stock has lost nearly 60% of its value in just three months.
Chief finance officer Craig Boelte blamed conservative forecasts to strategic decisions, including the impact of the Beti payroll product which has resulted in fewer billable items. Paycom’s Beti line allows workers to review and make corrections to payroll errors before pay day, lifting the liability from employers.
BUY FOR A BOUNCE, SAY ANALYSTS
Despite the sharp correction, Jefferies analysts continue to tell clients to invest in the stock. They believe that the slowdown is due to company-specific issues rather than broader macroeconomic factors, so it can be corrected and growth can return to previous rates down the line.
They also emphasised healthy new bookings and customer retention rates.
Paycom has put up revenue and operating profit growth of 24% to 26% on average since 2017. Operating margins have typically been running at 27% on average while returns on capital employed and equity are similarly high, at 24% and 26% since 2017.
