$PAYC Quick Pitch
Paycom Software Inc., known simply as Paycom, is an American online payroll and human resource software provider.
PAYC 0.00%↑ #QuickPitch mcap= $8.8B, price $158.55 / share
PAYC 0.00%↑ #Pitch:
Paycom is a leading provider of comprehensive, cloud-based payroll and human capital management (HCM) software. Delivered as a SaaS solution, Paycom’s platform empowers businesses to manage the entire employment life cycle—from recruitment to retirement—across multiple HCM functions, including talent acquisition, payroll, and human resources.
The global Human Capital Management (HCM) market was valued at $28 billion in 2023 and is projected to grow to $63 billion by 2032, at a CAGR of 9.1%.
One of Paycom’s standout advantages is that its solution is developed in-house and based on a single platform. This eliminates the need for clients to integrate, update, or access multiple databases, which is a common challenge with competitors that rely on third-party systems. As a result, Paycom users enjoy seamless integration and smoother interactions between modules without the hassle of transferring data between systems.
Paycom primarily caters to small and medium-sized businesses with 50 to 2,000 employees, though the average size of their clients has grown significantly as Paycom has expanded its operations and offerings. These businesses, often lacking the resources and expertise to manage HR processes effectively, are ideal candidates for Paycom’s automated HCM solutions.
With around 36,800 clients (or nearly 19,500 based on parent company grouping), none of Paycom’s clients contributed more than 1% of its revenues for 2023, demonstrating a well-diversified customer base.
In a competitive landscape filled with giants like ADP, Oracle, SAP, and Workday, Paycom distinguishes itself with its cloud-based, single-platform approach. While many competitors offer similar HCM solutions, Paycom’s integrated and user-friendly system gives it a competitive edge, particularly as demand for cloud-based solutions grows.
Paycom boasts strong fundamentals, with impressive ROIC, revenue, earnings, free cash flow, and a solid balance sheet. Despite this, the stock price has taken a hit, primarily due to slower customer growth. However, given Paycom’s focus on acquiring larger clients, this is understandable to me. Bigger clients lead to more revenue and greater free cash flow.
PAYC 0.00%↑ valuation:
In the past 12 months, Paycom generated $1.78 billion in revenue and approximately $450 million in profits, with earnings per share of $8.25 and free cash flow of around $300 million.
Paycom’s earnings have grown at an impressive average annual rate of 20%, outpacing the Professional Services industry’s ~10% growth. Revenue has been growing at an average of 21% per year, with a stellar return on capital of 33%. I love seeing financial efficiency. Paycom is a fantastic componder in my eyes.
While Paycom’s current valuation seems to reflect its short-term growth potential accurately, some analysts believe that the stock doesn’t fully capture its long-term promise, especially given the evolving HCM and payroll sectors.
Though fairly priced at the moment, Paycom’s strong position in the market means that dips in stock price could present attractive buying opportunities. I’m still balancing this. However, potential acquirer interest and shifting industry dynamics add a layer of risk that investors should carefully consider.
If Paycom can grow its free cash flow by 10-15% annually over the next decade, the company looks quite undervalued. Despite weak guidance causing a temporary dip in share price, I see significant value in this proven HCM software provider, which delivers essential services to businesses of all sizes.
Expected Gain: Paycom has strong short-term potential, with the possibility of surpassing analysts’ target of $250/share, and significant long-term gains are on the horizon.