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Why Paycom Software Stock Soared 23% in February

John Ballard, The Motley Fool

What happened

Shares of Paycom Software (NYSE: PAYC) gained 22.6% in value last month, according to data provided by S&P Global Market Intelligence.

The high-flying human resources technology provider delivered another round of impressive operating performance last month, which sent the stock price to a new all-time high. 

Two women shaking hands in a conference room.

Image source: Getty Images.

So what

For the fourth quarter, revenue climbed 32% year over year, which brought the full-year revenue up 31% to $566.3 million. 

As for profit, net income was $31.4 million, or $0.54 per share, in the fourth quarter, down from the $0.83 per share reported for the fourth quarter of 2017. The decline was due to a higher provision for income taxes in 2018. For the full year, earnings per share increased by 11% to $2.34. 

Given all the accounting changes around tax reform, Paycom's growth in cash from operations of 42% over 2017 might be a better measure of the company's profitability last year. 

One of the highlights of the quarter was an improvement in the annual client retention rate that reached 92%, up from 91% -- the first increase in six years. 

CEO Chad Richison credited the strong performance to Paycom's employee usage strategy: "We believe our impressive results are due in-part to our strategy to promote usage of Paycom software among our clients' employees. We are excited about our prospects for continuing to win new business utilizing this strategy through 2019 and beyond."

Now what

Management is calling for 2019 revenue to be in the range of $710 million to $712 million, or 26% year-over-year growth at the midpoint. Wall Street analysts expect the company to report adjusted earnings per share of $3.16, or an increase of 18.3% over 2018. 

Paycom stock is up 1,000% in the last five years, and given the recent robust results, the company clearly has a long runway of growth ahead in providing businesses with easy-to-use and intuitive software to recruit and manage talent. 

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John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Paycom Software. The Motley Fool has a disclosure policy.