Paycom Software ( NYSE: PAYC ) shares are dipping 3.2% in Monday afternoon trading after D.A. Davidson analyst Robert Simmons downgraded the stock to Neutral from Buy, citing an excessive premium valuation as well as prospects for a slightly softer second quarter.
As Paycom ( PAYC ) +7% stock outpaced shares of software and other payroll providers over the past six months, "we believe the current premium is larger than allows for stock outperformance over the near-term," Simmons wrote in a note to clients. During that time, the S&P 500 ( SP500 ) fell 8% and the IGV Software ETF ( IGV ) slid 13% .
While the company's Q2 results are expected to be a bit weaker than the average Wall Street consensus, Paycom ( PAYC ) "may be able to outgrow expectations sufficiently to drive its stock higher," due to its "efficient operating model across product, go-to-market and service delivery, and still low share in the payroll/HCM space," Simmons explained.
Note that analysts are expecting Q2 EPS of $1.12, implying a Y/Y growth rate of 15.50%. And its revenue is expected to climb 27.44% to $308.6M Y/Y in Q2.
Simmons' Neutral rating agrees with the Quant Rating of Hold, but diverges from the average Wall Street Analyst view of Buy.
Towards the end of June, Paycom was assumed with an Overweight rating at keyBanc .
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Paycom stock slides after D.A. Davidson pulls bull rating on valuation