We Ran A Stock Scan For Earnings Growth And Paycom Software (NYSE:PAYC) Passed With Ease

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Paycom Software (NYSE:PAYC), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Check out our latest analysis for Paycom Software

How Quickly Is Paycom Software Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Over the last three years, Paycom Software has grown EPS by 16% per year. That's a pretty good rate, if the company can sustain it.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Paycom Software shareholders can take confidence from the fact that EBIT margins are up from 25% to 28%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Paycom Software's future profits.

Are Paycom Software Insiders Aligned With All Shareholders?

Since Paycom Software has a market capitalisation of US$21b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. We note that their impressive stake in the company is worth US$3.2b. That equates to 15% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Paycom Software, with market caps over US$8.0b, is around US$12m.

Paycom Software's CEO took home a total compensation package of US$3.1m in the year prior to December 2022. That's clearly well below average, so at a glance that arrangement seems generous to shareholders and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add Paycom Software To Your Watchlist?

One important encouraging feature of Paycom Software is that it is growing profits. The fact that EPS is growing is a genuine positive for Paycom Software, but the pleasant picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. If you think Paycom Software might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.