(Yahoo Finance) – As you might know, Paycom Software, Inc. (NYSE:PAYC) just kicked off its latest third-quarter results with some very strong numbers. It was overall a positive result, with revenues beating expectations by 2.2% to hit US$197m. Paycom Software also reported a statutory profit of US$0.47, which was an impressive 47% above what the analysts had forecast. Earnings are an important time for investors, as they can track a company’s performance, look at what the analysts are forecasting for next year, and see if there’s been a change in sentiment towards the company. 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.
Taking into account the latest results, the current consensus from Paycom Software’s 13 analysts is for revenues of US$1.00b in 2021, which would reflect a major 23% increase on its sales over the past 12 months. Per-share earnings are expected to swell 16% to US$3.31. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$994.3m and earnings per share (EPS) of US$3.19 in 2021. So the consensus seems to have become somewhat more optimistic on Paycom Software’s earnings potential following these results.
The analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 16% to US$386. 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. The most optimistic Paycom Software analyst has a price target of US$475 per share, while the most pessimistic values it at US$217. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We can infer from the latest estimates that forecasts expect a continuation of Paycom Software’shistorical trends, as next year’s 23% revenue growth is roughly in line with 26% annual revenue growth over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 13% per year. So although Paycom Software is expected to maintain its revenue growth rate, it’s definitely expected to grow faster than the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Paycom Software’s earnings potential next year. Happily, there were no major changes to revenue forecasts, with the business still expected to grow faster than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year’s earnings. We have forecasts for Paycom Software going out to 2024, and you can see them free on our platform here.
It is also worth noting that we have found 1 warning sign for Paycom Software that you need to take into consideration.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.