HCM (Human Capital Management) software provider Paycor HCM has filed for an IPO and is expected to go public this week. What’s the forecast for Paycor stock and should you buy the IPO or stay away?
The U.S. IPO market was strong in the first half of 2020 and there were 113 new listings during the period, which collectively raised almost $40 billion. The second quarter of 2021 was the busiest since 2000 led by a strong June, which was the best month since August 2000.
July is also looking strong and 18 IPOs were priced last week, which is the third-highest for the year. While there has been a flurry of new listings and we’ve seen records, the performance of newly listed IPOs hasn’t been great. Even if we leave out Chinese IPOs like DiDi Global, which got hammered after China’s crackdown, the collective performance of IPOs hasn’t been satisfactory.
This is unlike 2020 where many IPOs doubled on the listing. Roblox and Affirm had to delay the listing to 2021 to increase the pricing. So far, 2021 has been a different ballgame and we’ve seen companies like Krispy Kreme price the IPO below the range. According to data compiled by Bloomberg, on average, companies that went for an IPO last week closed the week 1.3 percent below their issue price.
Paycor IPO date and price
Paycor is expected to list this week and the company has kept the IPO price between $18 and $21. It plans to sell 18.5 million shares and raise $361 million from the IPO. The company will be valued at $3.3 billion at the midpoint of the IPO range.
The company mainly intends to use the funds to redeem Midco Redeemable Preferred Stock. Paycor will list on the Nasdaq under the ticker symbol “PYCR.”
The company provides HCM solutions mainly to SME (small and medium enterprises) and has over 28,000 customers. Deutsche Bank, Goldman Sachs, Jefferies, J.P. Morgan, Credit Suisse, Baird, Cowen, Needham, JMP Securities, Stifel, Raymond James, and Truist are the joint book-runners for the IPO. Global private equity advisory firm Apax Partners is the equity sponsor of Paycor.
Paycor stock forecast
In the 12 months ended Mar. 31, Paycor reported revenues of $338 million. It has a high share of recurring revenues and in the nine months ending Mar. 31, it reported recurring revenues of 99 percent. The bookings growth was 33 percent over the period. Markets give a valuation premium to companies with a high share of recurring revenues as it takes away uncertainty and provides a lot of visibility to the business.
Paycor estimates its TAM (total addressable market) at $26 billion in the U.S. It estimates the TAM to increase as the coverage of SMBs rise and the company enhances its product offering.
Like most other tech and software companies that have listed over the last year, Paycor is also posting losses. The company posted an operating loss of $57 million in the nine months ended March 31, 2021, which was lower than the almost $65 million that it posted in the same period in 2020.
Based on the midpoint of the IPO price range, Paycor is valued at a trailing price-to-sales multiple of 9.7x. The multiples seem rich and leave little on the table for investors. However, the company has a massive market opportunity, which makes it a long-term buy.