A provider of human capital management software as a service, Paycom Software, Inc. (PAYC) is set to report fourth-quarter 2014 results on Feb 10. Last quarter, the company posted positive earnings surprise of 25%. Let us see how things are shaping up for this announcement.
Factors to Consider
Paycom Software reported better-than-expected third-quarter results. The year-over-year comparisons on both counts were also favorable. The results were driven by new client additions. Also, an increase in average revenue per client positively impacted quarterly revenues.
Paycom Software’s gross profit for the quarter increased 47.2% on a year over year basis to $30.2 million, or 82.4% of sales. The year-over-year growth in gross profit and gross margin was due to the company’s continued focus on streamlining costs and higher revenue base.
Furthermore, better-than-expected demand for advanced human capital management and payroll software solutions during the reported quarter were other positives.
In the soon-to-be-reported quarter, margins are expected to benefit from new sales teams and staffing cost management undertaken by the company. Also, significant investments in growth areas to expand capacity will boost profitability going forward.
Earnings Whispers
Our proven model does not conclusively show that Paycom Software is likely to beat the Zacks Consensus Estimate in the upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Paycom Software is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 4 cents per share.
Zacks Rank: Paycom Software has a Zacks Rank #2 (Buy). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies, which are worth considering as our model shows that they have the right combination of these two elements:
Procera Networks, Inc. (PKT) with Earnings ESP of +25.00% and a Zacks Rank #2
Criteo SA (CRTO) with Earnings ESP of +4.00% and a Zacks Rank #3 (Hold)
Demandware, Inc. (DWRE) with Earnings ESP of +25.00% and a Zacks Rank #3
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