Paycom Software, Inc. (NYSE:PAYC), which is in the software business, and is based in United States, received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to $150.8 at one point, and dropping to the lows of $111.54. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Paycom Software’s current trading price of $121.02 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Paycom Software’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What’s the opportunity in Paycom Software?
According to my relative valuation model, the stock is currently overvalued. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 71.65x is currently well-above the industry average of 41.69x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since Paycom Software’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will Paycom Software generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. Paycom Software’s earnings over the next few years are expected to increase by 99%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in PAYC’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe PAYC should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on PAYC for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for PAYC, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Paycom Software. You can find everything you need to know about Paycom Software in the latest infographic research report. If you are no longer interested in Paycom Software, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.