Is Paycom (PAYC) software a smart long term buy?

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Alger, an investment management firm, has released its third quarter 2021 “Alger Small Cap Focus Fund” letter to investors – a copy of which can be downloaded here. The largest sector weightings in the portfolio during the third quarter were healthcare and information technology. The largest sector overweight was healthcare. The portfolio had no exposure to the financials, materials, real estate or utilities sectors. You can check out the top 5 holdings in the fund to get a feel for their top picks for 2021.

Algiers, in its letter to investors for the third quarter of 2021, mentioned Paycom Software, Inc. (NYSE: PAYC) and discussed his position on the company. Paycom Software, Inc. is an Oklahoma City, Oklahoma-based online payroll and human resources technology provider with a market capitalization of $ 32.2 billion. PAYC has achieved a return of 18.48% year-to-date, while its 12-month returns are up 37.87%. The stock closed at $ 535.82 per share on October 22, 2021.

Here’s what Algiers has to say about Paycom Software, Inc. in its Q3 2021 letter to investors:

Paycom Software, Inc. was among the main contributors to performance. Paycom Software is a leading provider of comprehensive cloud-based Human Capital Management (“HCM”) software delivered as a Software as a Service (SaaS). Paycom provides the features and data analytics businesses need to manage the full employment lifecycle, from recruiting to retirement, with a focus on companies with 50 to 5,000 employees, which represent 72 % of American employees. Its HCM functions include talent acquisition, time and workforce management, payroll, talent management and human resources. The stock outperformed on the company’s announcement of a strong second quarter that beat consensus expectations on key metrics, including its recurring earnings, despite a tight labor market. Paycom continues to generate strong growth through its cutting edge technology as the pandemic has created increased demand for its employee self-service capabilities which are increasingly adopted by businesses. Its world-class sales organization, which includes a team dedicated to small employers and direct sales representatives for large companies, also supported the company’s second quarter results. We believe the second quarter illustrates how Paycom is currently positioned to capture market share, generate attractive revenue growth and profit margins, and deliver unexpected profits. “

Photo by Sharon McCutcheon on Unsplash

Based on our calculations, Paycom Software, Inc. (NYSE: PAYC) failed to land a spot on our list of the 30 most popular stocks among hedge funds. PAYC was in 39 hedge fund portfolios at the end of the first half of 2021, compared to 46 funds in the previous quarter. Paycom Software, Inc. (NYSE: PAYC) generated a return of 35.34% in the last 3 months.

The reputation of hedge funds as savvy investors has been tarnished over the past decade, as their hedged returns could not keep up with the unhedged returns of stock indices. Our research has shown that small cap hedge fund stock selection managed to beat the market by double digits every year between 1999 and 2016, but the margin for outperformance has shrunk in recent years. Nonetheless, we were still able to identify in advance a select group of hedge funds that have outperformed S&P 500 ETFs by 115 percentage points since March 2017 (see details here). We were also able to identify in advance a select group of hedge funds that underperformed the market by 10 percentage points per year between 2006 and 2017. Interestingly, the margin of underperformance of these stocks has increased in recent years. Investors who are long in the market and short on these stocks would have reported more than 27% per year between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next big investing idea. For example, lithium mining is one of the fastest growing industries right now, so we’re looking at stock locations like this. emerging lithium stocks. We go through lists like the top 10 electric vehicle stocks to pick the next Tesla that will deliver 10x yield. Even though we only recommend positions in a tiny fraction of the companies we analyze, we check as many stocks as possible. We read letters from hedge fund investors and listen to equity pitches at hedge fund conferences. You can sign up for our free daily newsletter on our homepage.

Disclosure: none. This article originally appeared on Insider Monkey.

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