We came across a bullish thesis on Paycom Software, Inc. (PAYC) on The Chop Wood, Carry Water Newsletter’s Substack by Alexandru Dragut. In this article, we will summarize the bulls’ thesis on PAYC. PAYC Technologies, Inc. share was trading at $172.58 as of Sept 23rd. PAYC’s trailing and forward P/E were 20.84 and 19.08 according to Yahoo Finance.
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Paycom operates in the Human Capital Management Industry wherein it offers its platform to small to medium-sized businesses which have 50 to 2000 employees, the platform provides a one-stop shop for companies to manage their employee’s entire employment life cycle right from recruitment to retirement. The platform has a variety of functions across various HCM areas such as talent acquisition, payroll, and HR. Even though Paycom competes with giants like ADP, Oracle, SAP, and Workday its in-house developed solution eliminates integration challenges faced by competitors relying on third-party systems giving it a competitive edge. This competitive edge has resulted in Paycom having a diverse customer base of 36,800 clients.
In trailing 12 months, the company generated $1.78 billion in revenue and ~$450 million in profits, with EPS of $8.25 and FCF of around $300 million. Paycom’s earnings have been growing at an impressive average annual rate of 20%, outpacing the Professional Services industry growth rate and it boasts a stellar return on capital of 33%.
The HCM market in which Paycom operates is projected to grow from $28 billion in 2023 to $63 billion by 2032, at a CAGR of 9.1%. This would be beneficial for Paycom given its strong market position due to the proven services that it delivers to businesses, we can expect that Paycom’s free cash flow will grow by 10-15% annually over the next decade, making it attractive for potential acquirers.
Thus we can conclude that Paycom is an appealing investment due to its strong market position and competitive edge despite recent stock price fluctuations and weak guidance.
Paycom Software, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 32 hedge fund portfolios held PAYC at the end of the second quarter which was 35 in the previous quarter. While we acknowledge the risk and potential of PAYC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PAYC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.