Paycom Software (NYSE:PAYC) stock has increased by 3.6% over the past week. Usually the market pays for a company's long-term financial health, so we decided to examine a company's fundamentals to see if they might be influencing the market. Did. Specifically, we decided to study Paycom Software's ROE in this article.
Return on equity or ROE is an important factor to be considered by a shareholder as it indicates how effectively their capital is being reinvested. In other words, this reveals that the company has been successful in turning shareholder investments into profits.
Check out our latest analysis for Paycom Software.
How do I calculate return on equity?
of ROE calculation formula teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, Paycom Software's ROE is:
26% = USD 341 million ÷ USD 1.3 billion (based on trailing twelve months to December 2023).
“Return” is the profit over the past 12 months. One way he conceptualizes this is that for every $1 of shareholders' equity, the company earned him $0.26 in profit.
What relationship does ROE have with profit growth?
So far, we have learned that ROE is a measure of a company's profitability. We are then able to evaluate a company's future ability to generate profits based on how much of its profits it chooses to reinvest or “retain.” Generally, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
A side-by-side comparison of Paycom Software's revenue growth and ROE of 26%.
First of all, we like that Paycom Software has a good ROE. Furthermore, the company's ROE is high compared to the industry average of 12%, which is quite noteworthy. Perhaps as a result of this, Paycom Software has been able to grow its net income at a respectable 18% over the past five years.
We then compared Paycom Software's net income growth rate to its industry. The same he found that the company's growth rate was high when compared to the industry where in five years he recorded a growth rate of 11%.
The foundations that give a company value have a lot to do with its revenue growth. In any case, investors should seek to ascertain whether expected earnings growth or decline has been factored in. Doing so will help you determine whether a stock's future is promising or ominous. Is the market pricing in PAYC's future prospects? Find out in our latest Intrinsic Value infographic research report.
Does Paycom software effectively reinvest profits?
Paycom Software's median three-year payout ratio is a low 13%, meaning the company retains the remaining 87% of its profits. This suggests that management is reinvesting most of its profits into growing the business.
In addition to growing its earnings, Paycom Software only recently started paying a dividend. It's entirely possible that the company was trying to impress shareholders. According to our latest analyst data, the company's future dividend payout ratio is expected to rise to 19% over the next three years. In any case, despite the higher expected dividend payout ratio, ROE is not expected to change significantly.
summary
Overall, I'm pretty happy with Paycom Software's performance. Specifically, we like that the company reinvests a huge amount of its profits at a high rate of return. Of course, this significantly increased the company's revenue. That said, the company's revenue growth is expected to slow, according to the latest industry analyst forecasts. To know more about the latest analyst forecasts for the company, check out this visualization of analyst forecasts for the company.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
