Returns as of 11/08/2021
Returns as of 11/08/2021
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The S&P 500 has surged 126% over the last five years, growing at an annualized rate of nearly 18%. That’s incredible. But over the same period, stocks in the information technology sector have skyrocketed 278%. That’s an annualize rate of about 30%, a pace that would double your money in less than three years.
With that in mind, it makes sense to hold at least a few tech stocks in your portfolio. And Paycom Software (NYSE:PAYC) and UiPath (NYSE:PATH) make for a well-balanced pair. The former falls on the low side of the risk-reward spectrum, while the latter leans in the other direction. But both could make you richer in the long run.
Image source: Getty Images
Paycom specializes in human capital management (HCM). Its comprehensive suite of software helps companies manage their employees, from hiring through retirement. That includes tools for talent acquisition, time and attendance, payroll, and other human resources functions like benefits administration and analytics.
Why does that matter? Many businesses currently rely on a patchwork of different software to meet their HCM needs, creating challenges related to data integration. Paycom solves those problems. Its platform is built on a single database, meaning administrators only have to enter employee information once. Paycom’s architecture also simplifies analytics, because all employee data is conveniently kept in the same place.
Those qualities make the company’s software very sticky, as evidenced by its retention rate of 93% in fiscal 2019 and 2020. And that has helped Paycom grow its top and bottom lines at a steady clip.
Q3 2019 (TTM)
Q3 2021 (TTM)
Free cash flow
Source: YCharts. TTM = trailing-12-months.
Looking ahead, I think Paycom can maintain or even accelerate its growth. The company currently has sales offices in 38 of the 50 largest metropolitan areas, and it’s expanding into new geographies and reinforcing its presence in existing ones. Moreover, in the wake of the pandemic, widespread labor shortages have created problems across numerous industries. But Paycom gives its clients the tools to attract and retain top talent, and that should drive demand in the current macroeconomic environment. That’s why this stock looks like a smart buy right now.
UiPath aims to enable the fully automated enterprise. Its platform blends artificial intelligence (AI) and robotic process automation (RPA), helping clients build, manage, and deploy software robots. These bots are designed to emulate human behavior, allowing them to learn from and replicate tasks performed by people.
In doing so, UiPath’s automation software drives enterprise efficiency, cutting labor costs and improving productivity. And to boost utility, UiPath’s platform also includes low-code development tools, allowing employees to create automated workflows with a drag-and-drop interface (rather than computer code).
Today, UiPath works with over 4,700 partners, including systems integrators like Accenture and Deloitte. Those companies effectively extend UiPath’s sales force, helping it grow its market presence. The UiPath marketplace also features hundreds of pre-built integrations, enabling clients to quickly automate tasks in Microsoft 365, Atlassian, and other popular applications.
To that end, UiPath’s easy-to-use software and broad partner ecosystem give it an edge. In fact, companies like Forrester Research and Gartner have recognized UiPath as the leader in RPA, citing a stronger product offering than any other rival. That advantage has supercharged its top-line growth.
Q2 2021 (TTM)
Q2 2022 (TTM)
Source: UiPath SEC filings. TTM = trailing-12-months. Note: Q2 2022 ended July 31, 2021.
Unlike Paycom, UiPath is currently free-cash-flow negative, and it competes in a nascent industry, making this a more risky investment. That being said, the company’s future still looks bright. Management puts its addressable market at $60 billion, and as the industry leader, UiPath is well positioned to capitalize on that opportunity. In fact, I wouldn’t be surprised to see this stock grow tenfold in the next 10 to 15 years.
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Stock Advisor launched in February of 2002. Returns as of 11/08/2021.
Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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