Last update on 2024-06-06

Paycom Software (PAYC) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Paycom Software (PAYC) analysis: Piotroski F-Score of 7/9 for 2023, highlighting financial strengths and opportunities for investors.

Short Analysis - Piotroski Score: 7

We're running Paycom Software (PAYC) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Paycom Software (PAYC) achieved a Piotroski F-Score of 7 out of 9, indicating strong financial health. The company has a positive net income and cash flow, with increasing ROA and operating cash flow that exceeds net income. Paycom's leverage is decreasing, and the asset turnover ratio is improving, signifying efficient asset utilization. However, Paycom's current ratio suggests liquidity constraints, and declining gross margin points to potential cost management issues.

Insights for Value Investors Seeking Stable Income

With a solid score of 7, Paycom Software demonstrates strong profitability and financial efficiency. The decreasing leverage and increasing asset turnover are strong positives, while areas like liquidity and gross margin need attention. Potential investors should consider the company's generally positive track record but keep an eye on its liquidity management and cost control strategies. Overall, Paycom Software is worth considering for investment, but with some monitoring of highlighted areas.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Paycom Software (PAYC)

Company has a positive net income?

Net income indicates a company's profitability after all expenses. A positive net income means the company is profitable.

Paycom Software (PAYC) had a net income of $340,788,000 in 2023, which is positive. This means that the company is profitable in the stated year and would thus be awarded 1 point based on the Piotroski Analysis criteria. Over the last 14 years, the company's net income has mostly followed an upward trend, barring a few years of inconsistency. This persistent profitability and upward trajectory signal robust financial health—a strong positive indicator under Piotroski’s framework.

Company has a positive cash flow?

A positive Cash Flow from Operations (CFO) is vital as it indicates a company's capacity to generate sufficient cash to maintain and grow operations without needing external funding.

In 2023, Paycom Software (PAYC) reported a CFO of $485,037,000. This positive CFO is a good sign for the company as it demonstrates strong capacity to generate cash internally. Over the past 14 years, the CFO has been on an upward trajectory, rising from $9,085,000 in 2011 to $485,037,000 in 2023. This consistent growth is a healthy trend, showcasing the company's ability to efficiently manage its operations and sustain cash generation. With these robust figures, Paycom earns 1 point for its positive CFO, reaffirming investor confidence in its financial health.

Return on Assets (ROA) are growing?

The Change in ROA is a comparison measure of the company's Return on Assets from one period to another, assessing its profitability.

Paycom Software's ROA increased from 0.0791 in 2022 to 0.0841 in 2023, indicating improved utilization of assets to generate profit. The trend is positive and reflects efficient asset management. Given that the ROA has increased, we add 1 point in this criterion. This improvement is significant, especially when compared to the industry median ROA, which has fluctuated but generally stayed below 0.7 over the last 20 years. Paycom's improved ROA amidst an industry with median values ranging from 0.607 to 0.6741 further showcases its competitive advantage.

Operating Cashflow are higher than Netincome?

The operational cash flow being higher than net income can be seen as a positive sign, as it indicates that the company is generating sufficient cash to sustain its operations.

In 2023, Paycom Software's operational cash flow was $485.04 million, while the net income was $340.79 million. This results in a positive cash flow, earning a score of 1 according to the Piotroski criteria. Analyzing the last 20 years of data shows that Paycom Software has consistently improved its operational cash flow from $0.91 million in 2011 to $485.04 million in 2023. This trend signifies robust financial health and efficient cash flow management, which is indeed a positive indicator.

Liquidity of Paycom Software (PAYC)

Leverage is declining?

Change in Leverage is crucial as it measures a company's change in financial risks. Decreasing leverage usually indicates a lower risk as it implies less reliance on debt.

In 2023, Paycom Software's leverage decreased to 0 from 0.0074 in 2022, indicating an improvement. This downward trend in leverage is evident over the last 20 years, dropping from 0.062 in 2012 to 0 in 2023. Therefore, Paycom scores 1 point in this Piotroski criterion, reflecting reduced financial risk and a healthier debt profile.

Current Ratio is growing?

Current ratio measures a company's ability to cover short-term liabilities with its short-term assets, highlighting liquidity.

In 2023, Paycom Software's current ratio stands at 1.11, a slight decrease from 1.1629 in 2022. Evaluating this metric over the years, the company's current ratio fluctuates, yet it's consistently below the industry median, which was 1.7519 in 2023. Lower values suggest tighter liquidity compared to competitors. Despite minor yearly variances, a drop in 2023 indicates potential liquidity constraints, warranting closer scrutiny on how efficiently Paycom is managing its assets and liabilities. Therefore, no point is awarded for this criterion.

Number of shares not diluted?

This criterion evaluates whether the company has decreasing outstanding shares, reflecting repurchase initiatives.

Over the years, the outstanding shares of Paycom Software (PAYC) have generally been on an increasing trend. From just 1,000,000 shares in 2010, the number expanded significantly in the subsequent years. Though there have been some minor fluctuations, the outstanding shares slightly decreased to 57,707,000 in 2023 from 57,928,000 in 2022. This slight decrease is positive as it could indicate share repurchase programs or other strategies to enhance shareholder value. However, the overall trend from earlier years shows substantial increases, suggesting this single year decrease might be an anomaly. Thus, for 2023, Paycom Software would score 1 point based on this criterion, but it is essential to monitor if this trend continues.

Operating of Paycom Software (PAYC)

Cross Margin is growing?

The change in Gross Margin is a critical metric as it indicates the company's financial health and operational efficiency in generating profit from sales.

Paycom Software (PAYC) has seen a decrease in its Gross Margin from 0.8453 in 2022 to 0.8369 in 2023, resulting in a 0-point addition according to Piotroski's analysis. This downward trend suggests potential challenges in managing production costs or pricing strategies effectively. Over the past decade, Paycom has generally maintained a high Gross Margin, significantly outperforming the industry median, which saw 0.6741 in 2023. Despite the industry median being considerably lower, the decline from 2022 to 2023 for Paycom indicates an area needing attention to maintain its competitive edge.

Asset Turnover Ratio is growing?

Change in Asset Turnover measures the efficiency with which a company uses its assets to generate sales revenue. It is important for assessing operational efficiency.

The Asset Turnover ratio of Paycom Software increased from 0.3864 in 2022 to 0.4182 in 2023, indicating improved operational efficiency. Historically, the trend over the past 20 years shows fluctuations, but the general upward movement in recent years is a positive signal. Thus, for this criterion, we add 1 point.