Last Update 28 Oct 25

Fair value Decreased 1.60%

Paycom Software's consensus analyst price target was modestly reduced from $246.69 to $242.75 per share. Analysts cite a mix of ongoing industry volatility and evolving growth expectations as factors supporting the adjustment.

Analyst Commentary

Recent updates from Wall Street highlight a mixed outlook for Paycom Software as firms adjust their targets and expectations in response to ongoing industry changes and company developments.

Bullish Takeaways

Bullish analysts note increasing conviction in Paycom’s ability to sustain double-digit revenue growth and materially expand free cash flow margins over the medium term. This is seen as supporting further valuation multiple expansion.
Analysts initiating coverage with an optimistic stance point to Paycom’s architectural advantages, such as its single database foundation and track record of innovation, as key differentiators in the evolving AI era.
Solid earnings performance, evidenced by recent quarterly results exceeding expectations, reinforces the belief that Paycom can deliver upside to consensus estimates.
The launch of new AI-driven features, including a comprehensive AI search engine rolled out across all customers, is seen as a significant technological step that can bolster long-term competitive positioning and growth prospects.

Bearish Takeaways

Bearish analysts remain cautious as sector volatility persists, with market uncertainty driven by fluctuating employment data and macroeconomic headwinds.
Some express concerns about the lingering impact of post-pandemic adjustments on Human Capital Management software. They suggest estimates may remain muted until the industry achieves a full reset.
Mixed early signals for upcoming quarterly results prompt some to maintain neutral stances, with channel feedback described as "ok, but not stellar," tempering near-term expectations.
Valuation remains a concern for more conservative analysts. They view the current risk-reward balance as reasonable but not highly compelling given undemanding industry multiples and ongoing competitive pressures.

What's in the News

Paycom Software released updates to its Direct Data Exchange analytics tool, which is now capable of measuring cost savings from new automated features such as its command-driven AI engine, I want, and other self-service HR functionalities based on updated EY cost data. (Key Developments)
The company announced the launch of I want, an industry-first AI engine that allows users to access and interact with employee information using simple voice or text queries. This feature enhances data accuracy by leveraging Paycom's single database. (Key Developments)
Updates from EY show that manual HR task costs have continued to rise, with manual payroll creation now costing $20.83 per instance. Paycom’s Beti tool automates payroll, reducing labor costs for payroll processing by 90 percent and saving over 2,600 hours annually for HR and accounting teams. (Key Developments)
From April 1, 2025 to June 30, 2025, Paycom repurchased 127,717 shares for $32.64 million, reaching a total of 6.27 million shares repurchased since 2016 under its ongoing buyback program. (Key Developments)
Paycom provided earnings guidance for 2025, expecting revenues of $2.045 to $2.055 billion, representing around 9 percent growth at the midpoint, with recurring and other revenue growth near 10 percent year over year. (Key Developments)

Valuation Changes

Consensus Analyst Price Target has declined modestly, from $246.69 to $242.75 per share.
Discount Rate has decreased slightly, moving from 6.99 percent to 6.98 percent.
Revenue Growth expectations have fallen, from 8.96 percent to 8.16 percent.
Net Profit Margin has improved, rising from 22.99 percent to 23.68 percent.
Future P/E has decreased from 29.55x to 28.84x.

AI-driven innovation and seamless product adoption are boosting client retention, sales productivity, and long-term earnings stability through automation and unified architecture.
Reinvestment into R&D and marketing, alongside strong sales momentum, positions Paycom for sustained revenue growth and market share expansion in a consolidating industry.
Increasing industry adoption of AI, talent shortages, and platform commoditization threaten Paycom's product differentiation, pricing power, and long-term revenue stability.

Catalysts

About Paycom Software

Provides cloud-based human capital management (HCM) solution delivered as software-as-a-service for small to mid-sized companies in the United States.What are the underlying business or industry changes driving this perspective?

The rapid rollout and positive initial adoption of the command-driven AI product "IWant" positions Paycom to capture incremental user engagement and cross-sell opportunities across its HCM platform, likely supporting accelerated recurring revenue and higher ARPU in coming quarters.
Automation and AI-driven product innovation, combined with Paycom's unified single database architecture, are driving salesforce productivity gains, increased client satisfaction, and higher client retention rates, which should meaningfully strengthen long-term net margins and future earnings stability.
Paycom's ability to activate the majority of its client base on new AI-powered features with minimal training or friction leverages the industry shift toward automation and digital transformation in workforce management, supporting sustained new logo wins and topline revenue growth.
Strategic reinvestment of expanding gross and EBITDA margins into R&D, AI infrastructure, and targeted marketing is enabling Paycom to keep pace with accelerated digital adoption trends across the HCM industry, supporting future operating leverage and margin expansion.
Management highlighted record outside sales performance, successful office launches, and a robust pipeline, indicating continued market share gains in a favorable demand environment as businesses consolidate HR vendors and seek comprehensive cloud-native solutions-supporting double-digit growth potential in revenue and earnings.

Paycom Software Earnings and Revenue Growth

Paycom Software Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Paycom Software's revenue will grow by 8.1% annually over the next 3 years.
Analysts assume that profit margins will increase from 21.2% today to 23.7% in 3 years time.
Analysts expect earnings to reach $586.5 million (and earnings per share of $10.54) by about September 2028, up from $415.7 million today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.6x on those 2028 earnings, down from 30.1x today. This future PE is greater than the current PE for the US Professional Services industry at 26.3x.
Analysts expect the number of shares outstanding to grow by 0.66% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 6.99%, as per the Simply Wall St company report.

Paycom Software Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Accelerating adoption of AI-driven HR automation across the industry could commoditize voice-enabled and command-driven interfaces like IWant, eroding Paycom's competitive differentiation and placing downward pressure on pricing and net margins.
The company's strategy of not directly monetizing its flagship AI product, IWant, may limit short-term revenue growth; if full-platform upsell or retention benefits do not materialize as anticipated, top-line and recurring revenue growth could disappoint.
Rising investments in AI, infrastructure, and CapEx to support new products are currently expected to be transitory, but if user adoption or system usage grows faster than anticipated, ongoing hardware, power, and R&D costs may remain elevated, impacting free cash flow and margins.
Persistent talent shortages in software and technical fields could hinder Paycom's ability to maintain rapid product innovation, risking slower feature development relative to competitors and potentially increasing customer churn, which would affect recurring revenue and earnings.
Industry consolidation among competitors and the proliferation of open APIs may lower switching costs for customers, increasing the risk that clients migrate to broader, more flexible platforms, thereby impacting retention rates and revenue stability over time.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $248.733 for Paycom Software based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $310.0, and the most bearish reporting a price target of just $208.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $586.5 million, and it would be trading on a PE ratio of 29.6x, assuming you use a discount rate of 7.0%.
Given the current share price of $222.49, the analyst price target of $248.73 is 10.6% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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