The reason I’ve maintained interest (and sometimes shares) in Paycom is because, although revenue had been growing at only ~30% for a long time, profit had been growing much faster. As a matter of fact, Operating Income has soared:
2018: 173.7m (up 121%)
The problem is, this year they have also restated 2017 expenses (due to changes in laws I think), so now the picture looks like this:
2018: 173.7m (up 54%)
Still great, of course! And that’s why Paycom has done so well. But inevitably, that 54% must come down to ~30% to match revenue. They’re already pumping almost 30% of revenue to the bottom line…there’s only so much margin improvement they can squeeze out!
When that happens, I think we’ll see the PE (which is now ~65) compress to around 30 as well. In other words, I don’t think we’ll see the share price grow even as fast as the revenue does.
I think they will continue to beat the market, but I think the CAGR will be under 30%, possibly under 20% since there will be some multiple compression. Better than a poke in the eye! But nothing like some of the other companies we’ll find here, hopefully!
PS For anyone unconvinced by the numbers above, break down the last 3 quarters. Operating income grew by:
I rest my case.