Prepare to Invest in Two Resurging Stocks by 2025
In 2024, shares of Paycom and Hanesbrands experienced growth, but both dropped from their peak values. Paycom is intentionally sacrificing short-term growth to capture a long-term opportunity, which has displeased Wall Street. On the other hand, Hanesbrands is rectifying its balance sheet and recovering from post-pandemic hardships.
Both companies could witness further growth in 2025 and beyond, despite uncertainties.
Paycom
Paycom's shares have recovered slightly but still lag far behind their pandemic highs. The stock has lost over half of its value since its peak, partly due to the negative consequences of a new product.
Paycom introduced Beti, an automated payroll solution that offers employees visibility into their paychecks and empowering them to fix issues ahead of payday. The proposition for Paycom's customers is straightforward: payroll staff can spend less time troubleshooting, as many issues can be resolved prior to payday.
However, Beti has led to a decline in other revenue streams for Paycom due to its cannibalization of other products and services. The stock plummeted towards the end of last year as this became evident, and revenue growth has been sluggish ever since.
This situation represents typical short-term thinking on Wall Street. Offering a product that saves customers time and money is a long-term win for Paycom, even if it causes temporary pain. As customers derive more value from Beti, Paycom's customer base is likely to grow more loyal.
Ray of hope emerged for Paycom stock in October, as the company reported impressive third-quarter results containing accelerated revenue growth. The shares are currently trading at 30 times forward earnings, which isn't particularly cheap. However, earnings are being affected by the temporary problems caused by Beti. As Paycom's strategy begins to materialize in 2025 and beyond, both earnings and the stock price could soar.
Hanesbrands
The post-pandemic period has been rough for Hanesbrands, known for its innerwear line, and the stock has taken a major hit. However, there's a glimmer of hope on the horizon.
Hanesbrands has successfully reduced its excessive inventory levels, decreased its debt, and sold its struggling Champion business. Cash flow now remains positive, and the company appears to be back on track.
The company's third-quarter results, while not perfect, showed progress. Sales slightly dipped compared to the previous year, but there were some bright spots. Hanesbrands finalized the sale of its Champion business shortly after the third quarter, and the proceeds were used for debt reduction. By the end of the year, Hanesbrands anticipates a reduction in debt by approximately $1 billion.
Hanesbrands projects free cash flow of $210 million for this year, which is lower than historical levels but still positive. Reducing debt will also lessen interest payments, supporting a free-cash-flow recovery in 2025. Despite trading at around 15 times forward free cash flow, Hanesbrands stock remains affordable.
Hanesbrands has managed to stabilize itself and enhance its financial health. Although not a high-growth stock, the turnaround narrative could result in substantial gains in 2025 and beyond.
Paycom could potentially boost its finance by capitalizing on the success of Beti, as the product's value proposition to customers could lead to an increase in loyalty and a growth in its customer base.
Hanesbrands might see significant financial improvements in 2025 and beyond, with its reduced debt levels and positive free cash flow projected to lessen interest payments and support a recovery.
