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Lean in – I want to let you in on a little secret.
Much of what the technology crowd – the media, marketers, analysts, etc. – tout to you as "disruptive" often isn't.
I have to admit, I even do it myself sometimes in an effort to grab your attention. (Though I hope I always follow up those small bits of of hype with solid, profitable guidance – and that's why you stick around.)
Many folks think of the cloud as a brand-new innovation. After all, the cloud didn't really get much traction on Wall Street until five years or so ago.
But really, the seeds for Software-as-a-Service (SaaS) were sown nearly 20 years ago. Back then, most folks logged onto the web using painfully slow dial-up connections – and so delivering and storing data and software on the Internet couldn't get much traction.
Well, it's getting traction now: According to IDC, SaaS spending alone will be worth $50.8 billion by the end of next year – and will surpass $112.8 billion by 2019.
In other words, even though cloud computing got started back in the Internet's "Stone Age," there's still plenty of money to be made here – if you know where to look.
I like to find under-the-radar, "secretive" companies that can produce bigger and faster profits than those usual suspects. And I've found one that got its start as an SaaS provider of human resources technology nearly 20 years ago, at the dawning of the "cloud era."
Now, after going public less than three years ago, this firm is growing faster than ever – doubling its sales roughly every two-and-a-half years. (With its share price following closely behind, helping its investors absolutely cream the market.)
That's going to keep happening.
Tech Reaches the HR Office
As you well know, competitive pressures are forcing corporations to relentlessly pursue every efficiency and advantage possible. And that makes every company a tech company – putting us in the Singularity Era.
That means companies in virtually every industry are using technology to improve sales, marketing, finance, logistics, payroll, and human resources management. And these sorts of advances are making big shifts in the "How We Work" window of the Singularity Nexus.
Let me show you how.
And how you can grab a stake in the profits being created…
Tech-savvy employers have learned that, with the right tools, they can recruit, develop, and retain talent far more easily. They also can manage payroll, hours logged, sick days and vacations, employee performance, and compensation budgets from an online (cloud) dashboard.
With a pay-as-you-go pricing structure, they can start small – and then add new services as needed. A small-business owner then doesn't have to spend a small fortune for a software suite that has far more bells and whistles than he or she needs.
Paycom Software Inc. (NYSE: PAYC) develops and markets those sorts of services – and more. It also offers firms with 50 to 2,000 employees two essential services that together target a $32 billion opportunity.
No wonder this Oklahoma City-based company is growing so quickly, throwing off a ton of cash, and making its shareholders wealthy…
Targeting a Pair of Massive Markets
First, Paycom supplies clients with payroll services that reduce the time, cost, and risk of errors that come with getting everyone paid. Payroll management may sound like a "sleepy" market, but it's a big one – IDC says it stands at around $17.8 billion this year.
That's Target No. 1.
Paycom also offers a range of services bundled under the category of human capital management (HCM). IDC pegs the HCM market at around $14.2 billion for 2017.
That's Target No. 2.
HCM covers nearly every part of the employment process… from recruitment to retirement. Paycom's Talent Acquisition tools help recruiters track job candidates with the most potential as well as tap into talent that has not yet applied for a job but should be courted.
Paycom's tools help HR pros perform background checks and check the accuracy of résumés. The cloud-based Talent Acquisition portal also offers a wide range of data analytics, helping to refine the hiring process and gauge if new hires are working out.
The company's Human Resources (HR) platform delivers a single cloud-based interface that can track employees throughout their "life cycle." The HR pros at Paycom's clients can monitor labor laws and regulatory compliance. They also get analytics on how to train and retain staff – and ways to give employees safe and secure access to their health insurance and 401(k) plans.
As any business owner or manager knows, getting the most out of your employees is a key advantage. Paycom's Talent Management portal helps bring compensation and performance together by taking the guesswork out of the process.
Clearly established goals can be measured against key metrics, giving managers the tools to conduct effective performance reviews as well as set raises and bonuses. Managers can track the whole process from a single online interface.
Here's the beauty of Paycom's business model. Its sales force starts out by hooking new clients up with inexpensive payroll services (their "loss leader") – and then upsell those clients high-margin human capital management tools.
Starting with payroll services makes a lot of sense. For small- and medium-sized businesses, taxes, expense forms, wage garnishing, and payroll analytics add up to a mountain of paperwork they'd love to shrink.
Customers just love the company. Paycom's tools work so well that around 98% of clients renew their contracts. Of course, it doesn't hurt that the firm's R&D staff gets constant feedback from the sales team about what their clients really need.
Now here's the best news yet.
Thanks to a classic Wall Street overreaction, we just got a new buying opportunity…
We Found Our Spot
Shares of Paycom sold off by 24% in early November despite the fact that it beat analyst forecasts for the October quarter.
You see, Paycom's conservative management team said that its impressive sales growth would slow somewhat in 2017. Paycom had seen 40% sales growth from 2009 through 2015.
Moreover, I think Wall Street put way too much emphasis on Obamacare as a Paycom sales tool. So it's not surprising that sell-off followed the presidential election with the Trump administration saying it wants to gut the Affordable Care Act.
Now, all that doesn't matter…
Just look at the new projections. They call for 33% sales growth in the fourth quarter of 2016, and growth of 25% to 30% for all of 2017. Profits should grow at the same rate.
And those earnings should double in just over two-and-a-half years. In other words, this remains a great growth firm with a lot of upside ahead.
Wall Street seems to be waking up to that fact. Since the stock bottomed out Nov. 10, it has bounced back by roughly 26%.
Insiders are also very bullish and pounced on the pullback. They bought more than $1 million in Paycom stock in both November and December, according to Insider-Monitor.com.
That's the largest cluster of insider buying – maybe the single best "bullish" signal a stock can receive – since this firm went public in April 2014. Plus, Paycom is in the midst of a $50 million share-buyback program.
Paycom and its operations prove what I've been saying about the Singularity Era for some time now. Relentless innovation is changing every aspect of the world around us on a daily basis – even your old filing cabinet-filled HR office.
In Paycom's case, it's transformed the seemingly dull world of payroll and human resources into a gold mine for tech investors.
And now, thanks to today's report, that's no secret.
If you like market-beating, small-cap picks like this one, be sure to check back here on Friday. That's when we'll take a look at a group of investors whom I know well enjoyed an 87.5% win rate in 2017 – and gained an average of 76% on their top five investments.
You don't see big gains like that very often in the sort of market we've seen over the past couple of years. So I know you'll want to learn how they did it.
See you then.
More in Technology: One of the fastest-growing tech investment segments is… cannabis? Yes, you read that right. A high-tech approach to cultivating this ancient plant – that's already legal to use in more than half of 50 states – is generating a multibillion-dollar investment opportunity for early investors. Click here to find out more, including how you can get your copy of Michael's Roadmap to Marijuana Millions. Packed with more than 30 great companies to buy, it's fast becoming "the weed investor's bible." Check it out…
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The post The Secret to Tech Investing Isn't Always "Disruption" appeared first on Strategic Tech Investor.
About the Author
Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.