The global human capital management (HCM) industry is enjoying favorable economic conditions that have been beneficial across the board for companies in the space. At a time when businesses big and small are looking to streamline operations, cut costs, and ensure compliance with a rapidly changing labor environment which includes more legislation that many small business owners must comply with, HCM service providers have seized the opportunity to offer solutions goals for their clients.
According to Fortune Business Insights, the global HCM market was valued at $28.86 billion in 2023 and is estimated to grow from $31.34 billion in 2024 to $63.14 billion by 2032. This projects a compound annual growth rate (CAGR) of 9.1% between 2024 and 2032, highlighting further opportunities ahead for HCM providers.
Asure Software (NASDAQ: ASUR) is an emerging HCM provider in an industry that has a very large TAM and has produced strong financial results for the last few years. Asure appears to be currently trading at a discounted valuation relative to its larger more well-known industry peers.
Looking Into Asure’s Recent Results and Guidance
The Texas-based company reported Q1 2024 results on May 2nd, which showed revenue of $30.7 million, which represented year-over-year growth of 10% (excluding ERTC, a one-time COVID era tax credit program). Management estimates total revenue to be between $125 million and $129 million for the full year 2024, on an adjusted EBITDA range of $25 million to $27 million (EBITDA margins of 20% to 21%). If we exclude ERTC from 2023 revenues this implies growth of 25% for 2024 based on management’s guidance for 2024. The compares for 2024 on a year over year basis in the first few quarters are tough, but these will ease as we enter the second half and especially once we get to Q4 2024. The growth rates will become much more appealing, and investors will start to take notice of this thus we think the stock will respond positively.
HCM Industry Valuation Comparison
In their Q1 2024 investor presentation, Asure broke down its valuation position compared to some of its industry peers: Paycor (NASDAQ: PYCR), ADP (NASDAQ: ADP), Paycom (NYSE: PAYC), Paylocity (NASDAQ: PCTY) and Paychex (NASDAQ: PAYX). From an enterprise value-to-revenue standpoint, Asure trades at 1.3x, compared to an average of 5.7x from its listed peers.
With an EV/revenue multiple even at the next lowest target (Paycor’s 4.2x) the implied share price for Asure stands at $20 per share. On the high end, Asure’s implied share price would be $37 if its EV/revenue multiple matched Paychex’s 7.8x. This provides a clear demonstration of Asure’s valuation state relative to some of the major peers in the HCM industry.
Overall, Asure Software continues to fly under the radar as a relatively undiscovered gem in the appealing HCM services industry. The company is growing its core business at a strong rates and management estimates for 2024 imply 25% plus growth (excluding ERTC revenues from 2023). Given Asure’s low EV/revenue valuation metric the stock looks to be much more enticing than its larger rivals. For now, Asure waits for the recognition it so richly deserves for the impressive and sustained growth its core HCM business has sustained and is forecasted to continue. For investors looking for bargains and underpriced opportunities, Asure appears to be a great place to do some further investigating.
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