Paycom's Sep 2018 Quarter

This is my review, and also a response to Joe, who beat me to it here:…

First, Joe, thanks for your kind words about regarding my monthly review – I do them more for myself than to “educate,” but if they’re helpful to you I’m glad.

On Paycom, I agree with all your points (in the post I linked to above), but I just think scrutinizing them too much is missing the forest for the trees. Paycom continues to succeed, and the way I’d put it is, “without breaking a sweat.” Chad Richison steering the ship is very calming.

Operating income this quarter was $36.2 million. That’s up 65% YoY from Sep 2017’s $22 million. (Actually in Sep 2017 they reported just $11.3 million, but now that they’ve adjusted to the new accounting method, some of those expenses don’t get recognized until the revenue does…I think. Again, trying to keep my eyes on the forest, not the trees. Still, I suppose one could see how showing higher income and EPS under the new method is helping Paycom’s shares.) But the basic math shows that their Operating Income this quarter is 27.2% of Revenue. Revenue also grew 31.6%. So if you buy into the “rule of 40,” they score a 58.8%…so they would likely score higher than a company growing revenue at 60%+, but losing money.

Even without the rule of 40 stuff, Operating Income growing at 65% works for me. Why was EPS only up 33%, from 0.39 to 0.52 (adjusted for the new accounting method)? Glad you asked. It has a lot to do with the fact that they only gave out $4.5m in SBC this quarter vs $13.3m in the Sep 2017 quarter. So I think Operating Income is a fairer metric in this case.

But however you slice the numbers, I just think there’s a lot to like about Paycom. Perhaps my adding yesterday wasn’t so much that I was overwhelmed at an amazing quarter, but simply that I’d sold some of my shares as it rose to well over $150 in the wake of their last quarter and some general market exuberance a few months ago. Seemed like a good time to buy them back. But I still love owning Paycom.