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• Since peaking at an all-time high north of $547 per share in November 2021, the payroll and human capital management software company’s stock price has cratered nearly 70%. Paycom’s PE ratio has fallen from a peak of 182 in late 2020 to its current value of about 28.
• In Paycom’s most recent earnings call, CEO Chad Richison mentioned a 2,500-employee client that recently adopted Beti and has since reduced its payroll team by half. Before Beti, the client’s payroll process took four days; now, it takes just a few hours.
• Despite the slowing growth and the valuation rerating, we think Paycom is still deserving as an investment. The company is still growing, with management guidance for revenue in 2024, implying year-over-year growth of 10.5%. This would represent a return to growth acceleration, suggesting that the trend of slowing growth has stabilised.
• Additionally, the company remains highly profitable, with trailing-12-month operating and net margins of 26% and 20%, respectively (inclusive of a one-time adjustment related to stock-based compensation). Management has intelligently taken advantage of the falling stock price, spending a combined $93.2 million on share repurchases in the first two quarters of 2024, boosting per-share growth.
• Even including the major decline in the stock price over the last few years, Paycom has been an outstanding investment throughout its history as a public company. Since its IPO in April 2014 through today, Paycom’s stock has produced a 1,428% return, trouncing the 225% return of the S&P 500 over the same period.