Paycom Software (NYSE:PAYC) - Share price, News & Analysis

Q: What is the Fair Price of PAYC when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

PAYC ($393.91) is trading below our estimate of [[fair value]] ($408.72)

PAYC fundamental analysis
Snowflake Score
Valuation	1/6
Future Growth	5/6
Past Performance	6/6
Financial Health	6/6
Dividends	0/6

PAYC Stock Overview

Paycom Software, Inc. provides cloud-based human capital management (HCM) solution delivered as software-as-a-service for small to mid-sized companies in the United States.

Rewards

Trading at 3.6% below our estimate of its fair value

Earnings are forecast to grow 23.72% per year

Earnings grew by 35.3% over the past year

Risk Analysis

Significant insider selling over the past 3 months

Paycom Software Competitors

Tyler Technologies

NYSE:TYL

US$17.0b

ANSYS

NasdaqGS:ANSS

US$24.8b

Paylocity Holding

NasdaqGS:PCTY

US$14.6b

PTC

NasdaqGS:PTC

US$14.7b

Price History & Performance

Summary of all time highs, changes and price drops for Paycom Software
Historical stock prices
Current Share Price	US$393.91
52 Week High	US$558.97
52 Week Low	US$255.82
Beta	1.49
1 Month Change	33.36%
3 Month Change	36.51%
1 Year Change	-15.06%
3 Year Change	63.16%
5 Year Change	460.73%
Change since IPO	2,466.19%

Recent News & Updates

Aug 02

Paycom raises year revenue, EBITDA guidance after strong Q2 beat

Paycom Software (NYSE:PAYC) stock is drifting up 1.2% in Tuesday afterhours trading after the company lifted its full-year revenue and EBITDA outlooks following a stronger than expected second quarter. It sees 2022 revenue of $1.354B-1.356B vs. $1.3B-1.34B in the previous target. Adjusted EBITDA is expected to be $546M-548M in 2022, compared with $533M-535M in the prior view. Turning to Q2 results, adjusted EPS of $1.26 topped the average analyst estimate of $1.12 and climbed from $0.98 in the year-ago period. Revenue of $316.9M also beat the consensus of $308.6M and rose from $242.1M in Q2 2021. Operating expenses totaled $244.6M at June 30 vs. $195.1M at June 30 a year ago. Q2 adjusted EBITDA came in at $199.6M compared with $87M in the year-ago quarter. Q2 adjusted EBITDA margin increased to 37.7% in Q2 from 35.9% in Q2 2021. Towards the end of July, Paycom shares fell after a new short report from Kerrisdale Capital.

Jul 26

Paycom Is One To Watch

Paycom has had incredible financial performance in the most recent year but is now slowing down. Despite good growth metrics and high profitability ratios, the price is still too high. Online and HR services are rising, but investing in them could cost you. With a potential recession looming, demand would surely drop, and Paycom will be affected by this. Based on their current stock price, valuation, and potential risk we give Paycom Software Inc. (PAYC) a hold rating. Although they are a leader in their industry and have beat revenues and EPS estimates on their last earnings report, we believe Paycom is currently overvalued, and investors should either hold the stock and wait to see if the price drops or wait to buy at a lower price if it does drop. Paycom Software Inc. is an online Human Resources and Payroll services provider headquartered in Oklahoma City. Paycom services all 50 states and has 18 offices nationwide. Some of the largest companies that use Paycom’s services are MWW Group LLC, TerraCycle Inc, The American Red Cross, Confidential Record INC., and Blackfriars Group. About 4,719 different companies use Paycom’s services. They have around a 5% market share, which is small compared to their competitors such as ADP Workforce and Workday. Although online payroll and human resource services have been around for more than a decade, its popularity has gone up in recent years especially during the pandemic. In 2021 Paycom saw record employee usage and have extended their employee platform with innovations such as Beti, which allows employees to do their own payroll. We believe the old practice of entering employee data manually will soon be overtaken by a new self-service system in which employees have a direct access to the database. Paycom may have a smaller market share compared to some of their peers, but they are growing rapidly. In 2021 they’ve expanded their client size range from 5,000 to 10,000 and are successfully selling their product to larger companies with more employees. They recently opened a new sales office in Manhattan, as well as four other locations in Las Vegas, Jacksonville, New England and Southern New Jersey. Their employee count rose 28% year over year to 5,385 employees, and we believe this number will only grow in the future. As mentioned earlier, Paycom recently came out with a new HR product called Beti that allows employees to do their own payroll. This product won top HR product of the year, and as a company Paycom ranked in the top 20 best places to work in the U.S. by Top Workplaces. In addition, they were named the top workplace in Oklahoma for the ninth consecutive year and were named the best company for women to work. Strong Earnings & Strong Financials Paycom came out with their Q4 2021 earnings report on February 8th of this year. They beat analyst estimates on both EPS and Revenues. They posted an EPS of $.84, which beat analyst estimates by $.07. They posted revenues of $284.9 million (up from $256.2 million in Q3 2021) beating analyst estimates by $9.14 million dollars. They beat analyst estimates of EPS every single quarter in 2021. Paycom’s net income also increased in 2021 from $143.5 million in 2020 to $196 million. Over a 5-year period on average their net income has grown at a 18.77% rate. Revenue per share also increased a significant amount to $18.23 from $14.60 in 2020. Over a 5-year period this number has risen an average of 26.28%. Their EBITDA increased from $212.4 million in 2020 to $284.3 million in 2021, another impressive increase. The 5-year average growth rate for their EBITDA is 22.23% which is also impressive and shows the company has plenty of potential to grow. Another big thing that caught our eye was their increase in cash and cash equivalents. In 2017 they had $46.1 million and in 2021 they had $278 million. The 5-year average growth rate for Paycom’s cash and cash equivalents is a staggering 52%. Their levered free cash flows have also increased significantly, rising 36,20% year over year. Their 5-year average free cash flow growth rate is 44.20%. The big issue we see with Paycom is not their operations as a company. They have strong financials, a great potential for growth, and shown they know how to innovate and create new products. The big issue with Paycom is their valuation. The stock price is currently at $318.97. The stock price has fallen 9.55% in the last month, 38.5% over the last six months, and 18.87% in the past year. Since the start of 2021, the stock price has fallen 21.23%. Even after this decline in price we still do not believe Paycom’s stock is at an appropriate buy price. PAYC's Stock Price is Still Too High We believe the biggest movers involving Paycom’s stock will be revenue growth and increasing their market share. Revenue growth will lead to more free cash flows which would allow Paycom to even further invest in their company and products. Increasing market share would undoubtedly have a positive effect, bringing more revenues in and strengthen the company’s financials. Paycom’s stock has fallen from its all-time high of $558.97 to a price of $313.90. Still, we believe the price is still too high for investors to purchase the stock. They have great growth potential and profit margin, but the current valuation is too high to be rated a buy. Paycom has a current GAAP P/E TTM ratio of 90.5 meaning the stock is trading at almost 100 times earnings. This is 239.44% higher than the sector median GAAP P/E TTM of 27.27. Analysts estimate that annual EPS for Paycom in 2022 will be anywhere from $5.29 to $6.00, while in 2021 Paycom posted an annual EPS of $3.37 (a year-to-year increase from 2020 to 2021 of 36.99%.) With a 5-year average GAAP P/ E TTM of 90.2, the market seems as if they have no problem buying Paycom’s stock even at a high valuation. This metric has fallen significantly since November of 2021 when the GAAP P/E TTM was 187.56, but even with a forward P/E ratio of 56.90 the price is twice as high as the information technology sector median. At the end of 2016, the P/E ratio for Paycom was a much more favorable 38.23. The stock has only gotten more and more expensive as time has passed. Paycom’s year over year revenue growth was a respectable 30.48%. In the past 5 years the average growth rate has been 26.44%. On their last earnings call, CFO Chad Boelte said their year-to-year total revenue growth for 2022 will be around 26%, a similar but smaller number than 2021. Analysts predict that on a forward-looking basis this number will be around 24.86%, which is still high for their sector. Paycom has a TTM operating cash flow growth rate of 47.95% and a FWD rate of 30.09%, which is a significant difference and indicates their operating cash flow will decline a great deal in the future. Other concerning growth metrics include their TTM and FWD ROE growth rates. Their TTM ROE growth rate of 18.02% is much higher than their FWD looking rate of 1.68%, and both metrics are quite lower than the information sector median. This indicates in the future their returns on equity will decline a fair amount as well. On a forward-looking basis, it looks as if Paycom is set to decline a great deal in their growth; Although even these forward-looking rates are still strong when compared to the Information technology sector. We believe Paycom will continue to grow but at a much smaller rate in the future, and we also believe the stock is priced too high despite strong growth metrics. Although we believe the current price of Paycom is too high for investors to be buying the stock, Paycom is very profitable and knows how to make a high return. They have a very high TTM profit margin of 87.69% which is very attractive to investors. They also have high net income and levered free cash flow margins of 19.64% and 20.94% respectively. Their profitability is not concerning; Paycom has high returns on equity capital and assets of 25.45%, 18.73% and 4.10%. There is no doubt that Paycom knows how to profit. Only their assets turnover ratio is concerning and currently sits at .26%, 59.7% lower than the sector median. Although Paycom has good growth and profitability metrics, as mentioned earlier we believe the price of the stock is simply too high for investors to get in right now. If you already own the stock, we believe it is a good idea to hold and see what happens in the future as the company is in a good position to grow their revenues and cash flows. However, there are almost no attractive valuation metrics that would constitute a buy rating. Potential Risks and Downsides As mentioned above, despite Paycom’s expensive valuation there are many parts of their business and financials that are attractive to investors. Although the price has fallen from its high of $558.97, we still believe that the current price of $317.32 is still too much. For this reason, we recommend investors who own the stock to hold it, and ones that do not own it to wait and buy the stock as the price continues to get cheaper. The potential risks investors take with our strategy can go two different ways; They can either miss out on gains by not holding the stock or lose money buy holding the stock and the price falls. If investors decide not to invest in Paycom and the price does go up, investors could lose out on potential gains. Although this is not what we see happening, we do encourage investors to be cautious of daily and weekly prices as this stock is more volatile than most. With a beta of 1.48, Paycom’s stock is sure to be volatile in the future especially with a potential oncoming recession. The next way investors could lose money with our strategy is by holding the stock and the price falls. Again, it is crucial for investors to check daily and weekly prices as this is a very volatile stock with a high valuation that could end up falling at any time. Earnings per share and revenue are expected to drop on their next earnings release, and investors should consider this as well. There are many forward growth rates such as revenue growth and operating cash flow growth that are much smaller than their year over year rates, which means the company’s current growth will not be sustainable in the future. Investors should not only look at past performance, but potential future performance as well.

Jul 18

Paycom Software (NYSE:PAYC) Seems To Use Debt Rather Sparingly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says...

Shareholder Returns

	PAYC	US Software	US Market
7D	6.5%	-0.9%	1.3%
1Y	-15.1%	-16.6%	-11.7%

Return vs Industry: PAYC exceeded the US Software industry which returned -16.6% over the past year.

Return vs Market: PAYC underperformed the US Market which returned -11.7% over the past year.

Price Volatility

Is PAYC's price volatile compared to industry and market?
PAYC volatility
PAYC Average Weekly Movement	7.5%
Software Industry Average Movement	10.5%
Market Average Movement	7.8%
10% most volatile stocks in US Market	16.9%
10% least volatile stocks in US Market	3.2%

Stable Share Price: PAYC is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 8% a week.

Volatility Over Time: PAYC's weekly volatility (8%) has been stable over the past year.

About the Company

Founded	Employees	CEO	Website
1998	5,385	Chad Richison	https://www.paycom.com

Paycom Software, Inc. provides cloud-based human capital management (HCM) solution delivered as software-as-a-service for small to mid-sized companies in the United States. It offers functionality and data analytics that businesses need to manage the employment life cycle from recruitment to retirement. The company’s HCM solution provides a suite of applications in the areas of talent acquisition, including applicant tracking, candidate tracker, background checks, on-boarding, e-verify, and tax credit services; and time and labor management, such as time and attendance, scheduling/schedule exchange, time-off requests, labor allocation, labor management reports/push reporting, and geofencing/geotracking, and Microfence, a proprietary Bluetooth.

Paycom Software Fundamentals Summary

How do Paycom Software's earnings and revenue compare to its market cap?
PAYC fundamental statistics
Market Cap	US$22.79b
Earnings (TTM)	US$228.35m
Revenue (TTM)	US$1.21b

99.8x

P/E Ratio

18.8x

P/S Ratio

Is PAYC overvalued?

See Fair Value and valuation analysis

Earnings & Revenue

Key profitability statistics from the latest earnings report
PAYC income statement (TTM)
Revenue	US$1.21b
Cost of Revenue	US$150.73m
Gross Profit	US$1.06b
Other Expenses	US$832.55m
Earnings	US$228.35m

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)	3.95
Gross Margin	87.56%
Net Profit Margin	18.85%
Debt/Equity Ratio	2.9%

How did PAYC perform over the long term?

See historical performance and comparison

We’ve recently updated our valuation analysis.

Valuation

Is PAYC undervalued compared to its fair value, analyst forecasts and its price relative to the market?

Valuation Score

1/6

Valuation Score 1/6

Price-To-Earnings vs Peers
Price-To-Earnings vs Industry
Price-To-Earnings vs Fair Ratio
Below Fair Value
Significantly Below Fair Value
Analyst Forecast

Key Valuation Metric

Which metric is best to use when looking at relative valuation for PAYC?

Other financial metrics that can be useful for relative valuation.

The above table shows the n/a ratio for PAYC. This is calculated by dividing PAYC's market cap by their current preferred multiple.
What is PAYC's n/a Ratio?
n/a Ratio	0x
n/a	n/a
Market Cap	US$22.79b

PAYC key valuation metrics and ratios. From Price to Earnings, Price to Sales and Price to Book to Price to Earnings Growth Ratio, Enterprise Value and EBITDA.
Key Statistics
Enterprise Value/Revenue	18.6x
Enterprise Value/EBITDA	63.6x
PEG Ratio	4.2x

Price to Earnings Ratio vs Peers

How does PAYC's PE Ratio compare to its peers?

PAYC PE Ratio vs Peers

The above table shows the PE ratio for PAYC vs its peers. Here we also display the market cap and forecasted growth for additional consideration.
Company	PE	Estimated Growth	Market Cap
Peer Average	84.9x
TYL Tyler Technologies	95.2x	16.9%	US$17.0b
ANSS ANSYS	54.1x	13.7%	US$24.8b
PCTY Paylocity Holding	160.9x	20.7%	US$14.6b
PTC PTC	29.4x	17.0%	US$14.7b
PAYC Paycom Software	99.8x	23.7%	US$22.8b

Price-To-Earnings vs Peers: PAYC is expensive based on its Price-To-Earnings Ratio (99.8x) compared to the peer average (84.9x).

Price to Earnings Ratio vs Industry

How does PAYC's PE Ratio compare vs other companies in the US Software Industry?

Price-To-Earnings vs Industry: PAYC is expensive based on its Price-To-Earnings Ratio (99.8x) compared to the US Software industry average (48.5x)

Price to Earnings Ratio vs Fair Ratio

What is PAYC's PE Ratio compared to its Fair PE Ratio? This is the expected PE Ratio taking into account the company's forecast earnings growth, profit margins and other risk factors.

PAYC PE Ratio vs Fair Ratio.
Fair Ratio
Current PE Ratio	99.8x
Fair PE Ratio	41.2x

Price-To-Earnings vs Fair Ratio: PAYC is expensive based on its Price-To-Earnings Ratio (99.8x) compared to the estimated Fair Price-To-Earnings Ratio (41.2x).

Share Price vs Fair Value

What is the Fair Price of PAYC when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

Below Fair Value: PAYC ($393.91) is trading below our estimate of fair value ($408.72)

Significantly Below Fair Value: PAYC is trading below fair value, but not by a significant amount.

Analyst Price Targets

What is the analyst 12-month forecast and do we have any statistical confidence in the consensus price target?

Analyst Forecast: Target price is lower than the current share price.

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Future Growth

How is Paycom Software forecast to perform in the next 1 to 3 years based on estimates from 17 analysts?

Future Growth Score

5/6

Future Growth Score 5/6

Earnings vs Savings Rate
Earnings vs Market
High Growth Earnings
Revenue vs Market
High Growth Revenue
Future ROE

23.7%

Forecasted annual earnings growth

Earnings and Revenue Growth Forecasts

Analyst Future Growth Forecasts

Earnings vs Savings Rate: PAYC's forecast earnings growth (23.7% per year) is above the savings rate (1.9%).

Earnings vs Market: PAYC's earnings (23.7% per year) are forecast to grow faster than the US market (14.4% per year).

High Growth Earnings: PAYC's earnings are expected to grow significantly over the next 3 years.

Revenue vs Market: PAYC's revenue (18.4% per year) is forecast to grow faster than the US market (7.9% per year).

High Growth Revenue: PAYC's revenue (18.4% per year) is forecast to grow slower than 20% per year.

Earnings per Share Growth Forecasts

Future Return on Equity

Future ROE: PAYC's Return on Equity is forecast to be high in 3 years time (26.5%)

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Past Performance

How has Paycom Software performed over the past 5 years?

Past Performance Score

6/6

Past Performance Score 6/6

Quality Earnings
Growing Profit Margin
Earnings Trend
Accelerating Growth
Earnings vs Industry
High ROE

13.1%

Historical annual earnings growth

Earnings and Revenue History

Quality Earnings: PAYC has high quality earnings.

Growing Profit Margin: PAYC's current net profit margins (18.8%) are higher than last year (18.1%).

Past Earnings Growth Analysis

Earnings Trend: PAYC's earnings have grown by 13.1% per year over the past 5 years.

Accelerating Growth: PAYC's earnings growth over the past year (35.3%) exceeds its 5-year average (13.1% per year).

Earnings vs Industry: PAYC earnings growth over the past year (35.3%) exceeded the Software industry 18.7%.

Return on Equity

High ROE: PAYC's Return on Equity (23%) is considered high.

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Financial Health

How is Paycom Software's financial position?

Financial Health Score

6/6

Financial Health Score 6/6

Short Term Liabilities
Long Term Liabilities
Debt Level
Reducing Debt
Debt Coverage
Interest Coverage

Financial Position Analysis

Short Term Liabilities: PAYC's short term assets ($3.8B) exceed its short term liabilities ($3.6B).

Long Term Liabilities: PAYC's short term assets ($3.8B) exceed its long term liabilities ($329.1M).

Debt to Equity History and Analysis

Debt Level: PAYC has more cash than its total debt.

Reducing Debt: PAYC's debt to equity ratio has reduced from 23.8% to 2.9% over the past 5 years.

Debt Coverage: PAYC's debt is well covered by operating cash flow (1178.9%).

Interest Coverage: PAYC earns more interest than it pays, so coverage of interest payments is not a concern.

Balance Sheet

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Dividend

What is Paycom Software current dividend yield, its reliability and sustainability?

Dividend Score

0/6

Dividend Score 0/6

Notable Dividend
High Dividend
Stable Dividend
Growing Dividend
Earnings Coverage
Cash Flow Coverage

Dividend Yield vs Market

Notable Dividend: Unable to evaluate PAYC's dividend yield against the bottom 25% of dividend payers, as the company has not reported any recent payouts.

High Dividend: Unable to evaluate PAYC's dividend yield against the top 25% of dividend payers, as the company has not reported any recent payouts.

Stability and Growth of Payments

Stable Dividend: Insufficient data to determine if PAYC's dividends per share have been stable in the past.

Growing Dividend: Insufficient data to determine if PAYC's dividend payments have been increasing.

Earnings Payout to Shareholders

Earnings Coverage: Insufficient data to calculate payout ratio to determine if its dividend payments are covered by earnings.

Cash Payout to Shareholders

Cash Flow Coverage: Unable to calculate sustainability of dividends as PAYC has not reported any payouts.

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Management

How experienced are the management team and are they aligned to shareholders interests?

6.8yrs

Average management tenure

CEO

Chad Richison (52 yo)

24.58yrs

Tenure

US$2,958,410

Compensation

Mr. Chad R. Richison has served as President, Chief Executive Officer and Founder of Paycom Software, Inc. (“Paycom”) since 1998. He has been a Member of Board of Directors at Paycom Software, Inc. since 1...

CEO Compensation Analysis

Compensation vs Market: Chad's total compensation ($USD2.96M) is below average for companies of similar size in the US market ($USD12.88M).

Compensation vs Earnings: Chad's compensation has been consistent with company performance over the past year.

Leadership Team

Experienced Management: PAYC's management team is seasoned and experienced (6.8 years average tenure).

Board Members

Experienced Board: PAYC's board of directors are considered experienced (6.9 years average tenure).

Ownership

Who are the major shareholders and have insiders been buying or selling?

Insider Trading Volume

Insider Buying: PAYC insiders have only sold shares in the past 3 months.

Recent Insider Transactions

Ownership Breakdown

Dilution of Shares: Shareholders have not been meaningfully diluted in the past year.

Data	Last Updated (UTC time)
Company Analysis	2022/08/12 00:00
End of Day Share Price	2022/08/12 00:00
Earnings	2022/06/30
Annual Earnings	2021/12/31