It's been a pretty great week for Paycom Software, Inc. (NYSE:PAYC) shareholders, with its shares surging 11% to US$253 in the week since its latest first-quarter results. It looks like a credible result overall - although revenues of US$531m were what the analysts expected, Paycom Software surprised by delivering a (statutory) profit of US$2.48 per share, an impressive 25% above what was forecast. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Paycom Software after the latest results.
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Following the latest results, Paycom Software's 19 analysts are now forecasting revenues of US$2.03b in 2025. This would be a modest 6.1% improvement in revenue compared to the last 12 months. Statutory per-share earnings are expected to be US$7.07, roughly flat on the last 12 months. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$2.03b and earnings per share (EPS) of US$6.68 in 2025. The analysts seems to have become more bullish on the business, judging by their new earnings per share estimates.
Check out our latest analysis for Paycom Software
The analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 6.0% to US$235. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values Paycom Software at US$278 per share, while the most bearish prices it at US$203. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It's pretty clear that there is an expectation that Paycom Software's revenue growth will slow down substantially, with revenues to the end of 2025 expected to display 8.2% growth on an annualised basis. This is compared to a historical growth rate of 20% over the past five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 6.9% annually. So it's pretty clear that, while Paycom Software's revenue growth is expected to slow, it's expected to grow roughly in line with the industry.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Paycom Software following these results. Happily, there were no real changes to revenue forecasts, with the business still expected to grow in line with the overall industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
With that in mind, we wouldn't be too quick to come to a conclusion on Paycom Software. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Paycom Software analysts - going out to 2027, and you can see them free on our platform here.
However, before you get too enthused, we've discovered 2 warning signs for Paycom Software that you should be aware of.
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