Paycom Software 's PAYC board of directors recently declared amendment of its ongoing share repurchase program. The company will add $100 million of funds to the continuing buyback program and extend its duration till Feb 12, 2020.
In May 2016, the company announced a plan to buy back shares worth $50 million over a span of 24 months. Concurrent with the fourth-quarter of fiscal 2016 results, the company announced the extension of the program with another $50 million to be repurchased through January 2019. During the third quarter of fiscal 2017, management announced the completion of the "second $50 million" repurchase plan.
The company also announced a third buyback plan worth $75 million. During fourth-quarter 2017, the company bought back 538,000 shares. Paycom has repurchased 2.3 million shares since the start of the program in May 2016. The amendment is a testament to the fact that Paycom is returning value to its shareholders.
Impressive Balance Sheet
Paycom has a strong balance sheet. It generated $130.6 million cash from operating activities in 2017, which represents nearly an eight-fold increase from $16.9 million in 2013. The company exited 2017 with cash and cash equivalents of $46.1 million, compared with $13.4 million in 2013.
Net cash (i.e. cash and cash equivalents minus debt) for 2017 totaled $11.7 million, which increased from $1.8 million recorded in 2013. The existing cash can be used for pursuing strategic acquisitions, investment in growth initiatives and distribution to shareholders.
We believe that the company's shareholder friendly approach boosts investors' confidence in the stock, which has substantially outperformed the industry in the past year. While the industry gained 23.7%, the company rallied 70.3% during that time frame.
What's Going in Favor of Paycom?
The company posted impressive fourth-quarter 2017 results driven by the addition of clients and product development initiatives. The company's client retention rate, which has been hovering around 91% for almost six years in a row, is also a major positive.
Paycom's management is extremely positive about its sales and marketing initiatives, which are increasing its connection with the market and positively impacting the top line. In 2017, Paycom launched its application on Apple AAPL App Store and Google GOOGL Play Store. Additionally, the company received positive feedback on its first national television commercial.
The outperformance of the sales team prompted the company's announcement of the opening of a new sales office in Salt Lake City on the fourth-quarter 2017 conference call, which will bring the sales team count to 46.
Additionally, the company's shift to ASC 606 Accounting Standard, effective Jan 1, 2018 is anticipated to be another tailwind for the company's margins. Previously, the company recognized commission related expenses in the quarter in which a contract was signed. Per the new standards, the commission expense will be recognized ratably over the tenure of a contract. This will lower sales and marketing expenses, which will boost margins.
We believe that all these coupled with the accelerated adoption of the company's solutions will aid growth.
Paycom Software, Inc. Revenue (TTM)
Zacks Rank and Key Pick
Paycom sports a Zacks Rank #1 (Strong Buy).
Another top-ranked stock in the broader technology sector is Lam Research LRCX , sporting a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.
Long-term EPS growth rate for Lam Research is projected to be 14.9%.
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