Why Was Paycom Added to the S&P 500?

The cloud-based payroll system’s share price skyrocketed last week and landed the company a spot in the S&P 500.

Feb. 5, 2020

Paycom (NYSE: PAYC) was added to the S&P 500 in January after the company’s stock price more than doubled in the past year, increasing its market cap to around $18 billion. After the announcement on January 22, the company’s share price jumped more than 4% in after-hours trading to $317 per share.

How Paycom got added to the S&P 500

Paycom was created in 1998 in Oklahoma City and is a provider of cloud-style payroll software. By 2014, the company was listed on the NYSE and beat rival Workday (NASDAQ: WDAY) into the benchmark index, despite having less than half of the market cap and one-fifth of the revenue.

This is because S&P Dow Jones Indices requires a company to achieve a full year of profitability before it can be added to the broader S&P Composite 1500. For example, Paycom has generated a net income of over $160 million in the past four quarters, while Workday has lost over $100 million a quarter for the past five periods. Another example is the e-commerce platform, Shopify (NYSE: SHOP), which is valued at nearly $54 billion but is yet to make a profit and therefore can’t be added to the S&P 500 index, with the minimum market cap required set at $8.2 billion.

Overall, being added to the Index saw the company’s shares rise by 1.2% in regular trading, to a record high of $303.28, before extending its rally after hours. Its 116% increase in 2019 outdid the S&P’s 500’s gain of nearly 29%.

Who is Paycom’s competition?

The latest news for Paycom comes just a few months after cloud seller ServiceNow (NYSE: NOW) was listed on the index and reflects the demand for subscription software. Before last year, Salesforce (NYSE: CRM) was the only modern cloud company on the Index, along with older names such as Adobe (NASDAQ: ADBE) and Autodesk (NASDAQ: ADSK).

Paycom has now replaced WellCare Health Plans, which was acquired by Centene. The company also has competition with Cornerstone OnDemand (NASDAQ: CSOD) and Ceridian (NYSE: CDAY).

Is Paycom’s business model sustainable?

Paycom’s business model is set up in a way that instead of customers only purchasing one-time for a software package, they rent cloud-based access to its human resources tools. Of last quarters $175 million in revenue, $171.4 million was recurring. This model gives the company’s investors a clear idea of how future revenue will be generated.

What’s Next for Paycom?

Paycom is due to report earnings for its fiscal fourth-quarter 2019 on Wednesday, February 5, 2020, after market close. According to Yahoo Finance, analysts are expecting the company to post earnings of 77 cents a share on revenue of just over $190 million. This would represent year-over-year growth of more than 42% and 26% respectively for Paycom.

The company will also report its full-year 2019 results on the same date, with analysts expecting year-over-year growth of roughly 30% to hit $734.7 million.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Paycom. Read our full disclosure policy here.

Written by Alsha Coppolina.