SAP (SAP) and Paycom Software (PAYC) Critical Analysis

SAP (NYSE: SAP) and Paycom Software (NYSE:PAYC) are both mid-cap technology companies, but which is the better stock? We will compare the two businesses based on the strength of their profitability, earnings, analyst recommendations, dividends, risk, institutional ownership and valuation.

Risk & Volatility

SAP has a beta of 1.14, meaning that its share price is 14% more volatile than the S&P 500. Comparatively, Paycom Software has a beta of 1.67, meaning that its share price is 67% more volatile than the S&P 500.

Profitability

This table compares SAP and Paycom Software’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
SAP 15.80% 15.43% 8.93%
Paycom Software 15.37% 44.27% 5.67%

Insider & Institutional Ownership

3.7% of SAP shares are held by institutional investors. Comparatively, 88.4% of Paycom Software shares are held by institutional investors. 7.4% of SAP shares are held by company insiders. Comparatively, 17.9% of Paycom Software shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Analyst Recommendations

This is a breakdown of current recommendations and price targets for SAP and Paycom Software, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
SAP 1 3 13 0 2.71
Paycom Software 0 5 11 0 2.69

SAP currently has a consensus price target of $99.82, suggesting a potential downside of 14.19%. Paycom Software has a consensus price target of $84.50, suggesting a potential upside of 0.74%. Given Paycom Software’s higher probable upside, analysts clearly believe Paycom Software is more favorable than SAP.

Dividends

SAP pays an annual dividend of $0.98 per share and has a dividend yield of 0.8%. Paycom Software does not pay a dividend. SAP pays out 26.3% of its earnings in the form of a dividend.

Earnings and Valuation

This table compares SAP and Paycom Software’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
SAP $24.42 billion 5.86 $3.85 billion $3.72 31.27
Paycom Software $329.14 million 14.85 $43.84 million $1.06 79.13

SAP has higher revenue and earnings than Paycom Software. SAP is trading at a lower price-to-earnings ratio than Paycom Software, indicating that it is currently the more affordable of the two stocks.

About SAP

SAP SE (SAP) is a software and service provider. The Company offers enterprise application software. The Company operates through two segments: Applications, Technology & Services segment, and the SAP Business Network segment. The Applications, Technology & Services segment is engaged in the sale of software licenses, subscriptions to its cloud applications, and related services (primarily support services and various professional services, and support services, as well as implementation services of its software products and education services on the use of its products). The SAP Business Network segment includes its cloud-based collaborative business networks and services relating to the SAP Business Network (including cloud applications, professional services and education services). Within the SAP Business Network segment, the Company markets and sells the cloud offerings developed by SAP Ariba, SAP Fieldglass and Concur.

About Paycom Software

Paycom Software, Inc. is a provider of a cloud-based human capital management (HCM) software solution delivered as Software-as-a-Service (SaaS). The Company provides functionality and data analytics that businesses need to manage the complete employment life cycle from recruitment to retirement. The Company’s applications streamline client processes and provide clients and their employees with the ability to directly access and manage administrative processes, including applications that identify candidates, on-board employees, manage time and labor, administer payroll deductions and benefits, manage performance, terminate employees and administer post-termination health benefits, such as COBRA. The Company’s solution allows clients to analyze employee information to make business decisions. The Company’s HCM solution offers a range of applications, including talent acquisition, time and labor management, payroll, talent management and human resources (HR) management.

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