In this age of the #MeToo movement, HR departments around the world are under siege. No one trusts human resources because they’re seen to cover up the misdeeds of upper management rather than champion the causes of the men and woman way down the pecking order. Things have gotten so bad that an app’s been created called Blind that allows employees to complain about their companies anonymously without being found out.
“Our app wouldn’t exist if everyone trusted HR,” Curie Kim, spokesperson for Blind, said recently. According to an August article at Blind’s website, a survey of 11,894 tech employees found that 70% of tech employees don’t trust HR. That’s seven out of ten people who distrust their human resources department.
However, one shouldn’t be surprised by these findings. The question of who HR works for is old as time itself. We like to think that HR is working for us, the employees, but the truth is they’re working for the board and company shareholders. Their job is to look after the best interests of the company, and sometimes that means handling delicate personnel matters without the entire world finding out.
What’s that got to do with HR tech stocks? Well, if Blind were a publicly traded company, you might be very interested in buying its stock, merely because it’s the mortal enemy of the HR department. Seriously, though, there are a lot of interesting HR tech stocks available to investors today. Here are seven I believe are worth putting in your portfolio.
TriNet Group (TNET)
TNET helps small- and mid-sized businesses handle the mundane aspects of their companies using technology and excellent business outsourcing services to get the job done.
Stable growth over the past three years — revenues have risen by 49% from $2.2 billion in 2014 to $3.3 billion in 2017 — has generated an annualized total return of 37% for TNET shareholders, well above most major indexes including doubling the return of NASDAQ Composite over the same period.
In its second quarter ended June 30, TriNet increased its net service revenues (excludes insurance costs) by 10% to $220 million. On the bottom line, it increased adjusted net income by 70% to $63 million, a net margin of more than 30%.
“We’re seeing the benefits of the investments we’ve made in our technology, management team and products,” said CEO Burton Goldfield in its Q2 2018 press release. “Looking ahead, we remain well positioned to scale our operations to the benefit of our clients and shareholders.”
With net debt of $223 million or just 6.6% of its market cap, it’s ready should the economy turn south. In the meantime, enjoy the ride higher.
Ceridian HCM (CDAY)
Human capital management stocks like Ceridian HCM (NYSE:CDAY) have had a strong year in the markets. Considering how complicated human resources has become it’s easy to understand why. Their stocks are in big demand.
The company behind Dayforce, one of North America’s leading cloud-based human capital management platforms, went public in April at $22 a share. CDAY gained 42% on its first day of trading; it’s gained another 29% since.
In early May, I called Ceridian HCM an up-and-coming stock. Nothing’s happened in the five months to change my mind. CEO David Ossip, who ran Dayforce before being promoted to the top job in 2012, continues to innovate.
Dayforce recently launched on-demand pay functionality to its platform so that employees with emergency cash needs can access their pay immediately instead of having to wait for their next paycheque. If you’re a CEO like Ossip, it’s not a big deal. However, if you’re a low-level employee, it will make all the difference in the world. Of all seven HR tech stocks, CDAY is my favorite.
Paycom Software (PAYC)
To make the list, Fortune took Paycom’s average annual revenue growth over the past three years; the average earnings per share growth over the same period; and its total stock return over those three years.
In 2017, Paycom’s revenues increased 32% to $433 million and over the three previous years, its revenue grew by an average of 42%. Naturally, as Paycom gets bigger, the annual growth gets smaller. It’s the nature of the beast. You shouldn’t look at 2017’s slower growth as a negative.
In the second quarter ended June 30, Paycom’s revenue jumped 31% year-over-year to $128.8 million while its non-GAAP net income increased 70% from a year earlier to $34.8 million. Paycom’s growing so fast it opened a fourth building at its Oklahoma City headquarters during the quarter. Oh, and PAYC stock. It’s up 70% year to date through Oct. 17.
Automatic Data Processing (ADP)
You don’t get to be a $62 billion company like Automatic Data Processing (NYSE:ADP) without using technology to run your business. Over the past two years, it’s made three strategic investments to become more tech savvy.
In October 2017, it acquired Global Cash Card, a digital payment processing platform that enables it to improve the efficiency and speed at which its clients’ employees get paid.
“ADP pays 1-in-6 workers in the U.S. and our clients look to us as the market leader to offer solutions that help them better engage with their entire workforce,” CEO Carlos Rodriguez said at the time. “The acquisition of this established and profitable company helps us innovate around the essential service of delivering pay …”
Two other acquisitions include WorkMarket in January of this year and Celergo this past August. WorkMarket provides cloud-based workforce management and is especially helpful in dealing with freelancers, a growing segment of the workforce. Celegro allows companies to make payroll payments in multiple countries and is said to be a $3 billion market. As companies become more global, Celegro’s services will be in demand.
As HR stocks go, you can’t get much bigger than ADP.
Tableau Software (DATA)
Tableau Software (NYSE:DATA) operates in the wild and wooly world of data analytics, a segment of the tech industry that’s growing by leaps and bounds to keep up with the amount of information that’s out there. Right there on Tableau Software’s investor relations site is a telling stat about just how big data analytics is.
“In 2020 the world will generate 50 times the amount of data as in 2011 and 75 times the number of information sources (IDC, 2011),” states the company. “Within these data are huge opportunities for human advancement. But to turn opportunities into reality, people need the power of data at their fingertips. Tableau is building software to deliver exactly that.”
What’s in it for you? According to IDC, business intelligence is a $166 billion market worldwide and is expected to grow to $260 billion by 2022. Over the past five years, Tableau Software’s revenues and free cash flow have grown by 47% and 87% annually, respectively, riding the coattails of a segment of the tech industry that’s on fire.
Surprisingly, Tableau’s stock’s only achieved an annualized total return of 8.8% over this five-year period. That lack of performance has a lot to do with the fact it doesn’t make money on a GAAP basis.
However, in fiscal 2017, it generated $165 million in free cash flow or 19% of its revenue. Up 51% year to date through Oct. 17, GAAP profitability is going to come sooner than investors think. If I were trying to hit a home run, DATA would be the stock I’d bet on.
My InvestorPlace colleague Vince Martin thinks Workday (NASDAQ:WDAY) could be the next Amazon (NASDAQ:AMZN). That’s high praise for the cloud-based human capital management platform that’s leaning on machine learning to give it a competitive advantage against its competitors.
“Workday is starting to look like the enterprise software version of Amazon,” Martin wrote Sept. 10. “Its core HR product has driven huge gains in WDAY stock, which now has a $31 billion market cap. But Workday is just getting started.”
Not only is Workday looking to capture the human capital management aspects of a company’s business, but it’s also going after the financial management, analytics and the planning aspects of enterprises of all sizes.
On Sept. 4, it announced its third-quarter results. What stands out for me is the growth in subscription revenue, which was up 30.2% from a year earlier. Yes, it lost money on a GAAP basis. However, on a non-GAAP basis, it earned 31 cents a share, 29% higher than a year earlier. Like Tableau Software, profitability should come once its business gets a little more scale.
Of all the stocks listed in this article, Workday is the one I would like to learn more. It’s not necessarily the pick of the litter, but it is doing some interesting things in an around HR.
Recruit Holdings (RCRRF)
If you’re looking for a job or your newest employee, Recruit Holdings (ADR) (OTCMKTS:RCRUY) is a company that you want to get to know a little better.
Have you seen those Indeed ads where a business owner talks about how much time it takes hiring a new employee?
Well, Indeed is a job site owned by the Japanese HR conglomerate, whose mission it is to connect people whether it be through a B2C or B2B model. Recruit acquired Indeed in 2012 for as much as $1 billion, a considerable sum for a startup that needed only $5 million in funding to hit the big payday.
Recruit was at it again in April when it acquired Workpolis.com, arguably Canada’s largest and most successful career site. If you’re Canadian, you’ve likely visited its job boards at one time or another.
In May, Recruit paid $1.2 billion to acquire Glassdoor Inc., the website best known for employee reviews of employers and CEOs. If you’re looking for a stable, growing HR tech stock, Recruit gives ADP a big run for its money.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.