Paycom Software: A Hidden Gem in the Market's Storm

Cyrus ColeWednesday, Jun 11, 2025 5:49 am ET
40min read

The stock market's volatility in 2025 has battered even the most resilient companies, but few have been punished as unfairly as Paycom Software (NASDAQ: PAYC). Despite posting EPS growth of 38–41% annually over three years, its shares have plummeted 37% over the same period. This disconnect between fundamentals and valuation presents a compelling opportunity for long-term investors. Let's dissect why Paycom's stock is undervalued—and why now could be the perfect entry point.

The Fundamentals: Growth That Outpaces the Market

Paycom's earnings trajectory is undeniable. From $4.84 in 2022 to $8.92 in 2024, its GAAP EPS has surged 84% in three years, far outpacing the 11.2% industry average. Meanwhile, its cloud-based HCM platform retains 98% of its clients annually, a testament to sticky revenue streams. Even non-GAAP metrics—excluding one-time gains—show a 6.0% EPS growth in 2024, a slowdown but still robust.

Yet the stock price has lagged. While earnings climbed, the share price fell from a 52-week high of $319 in 2022 to a low of $139.50 in early 2024, before rebounding to $264 in mid-2025. This divergence is starkly captured in the following data:

Why the Discount? Three Key Culprits

  1. Market-Wide Panic: The 2025 Tariff Tsunami
    The 8.3% S&P 505 drop in April 2025 (driven by Trump's tariffs) exacerbated Paycom's decline. As the broader market sold off, investors fled perceived “richly valued” stocks, including Paycom, which had a PE ratio of 63.85 in 2022. Even as the market recovered, Paycom's valuation lingered in the doldrums.

  2. Over-Penalized for Internal Challenges
    A Reddit post in April 2025 highlighted employee concerns about layoffs and “horrible policies.” While Paycom's WARN Act compliance remains unclear, the market likely overreacted. Meanwhile, insider selling—notably CFO Craig Boelte's $1.9M sale—fueled skepticism. Yet CEO Chad Richison's $29.2M sale in May 2025 (via a 10b5-1 plan) signals confidence in long-term value, not panic.

  3. Misplaced Focus on One-Time Gains
    A $117.5M one-off gain in Q1 2024 skewed EPS comparisons, leading analysts to question sustainability. But strip out noise, and Paycom's core metrics shine: 19.7% annual revenue growth and 86% gross margins, fueled by automation like its Beti payroll tool, which cuts labor costs by 90% for clients.

Why the Turnaround is Underway

Recent catalysts suggest the market is waking up to Paycom's value:
- Product Dominance: Its single-database HCM system and Ask Here AI tools retain clients and command $2.023B in 2025 revenue guidance, up 8%.
- Analyst Revisions: The consensus EPS estimate for 2025 rose 2.2% over 30 days, with Piper Sandler upgrading its price target to $246.
- TSR Outperformance: Paycom's 11% one-year Total Shareholder Return trounces the S&P 500's -6% over the same period.

The Case for a Buy Now

Paycom's 20.22 PE ratio (as of June 2025) is near decade lows, despite its 25%+ 5-year EPS CAGR. With 87% institutional ownership and a $1.5B buyback, the stock is primed to rebound as growth fears subside.

Investment Thesis:
- Risk/Reward: A $264 entry point offers exposure to 8% revenue growth and 11.8% EPS growth (per analyst forecasts), with a 0.57% dividend yield for downside protection.
- Catalysts: Upcoming client wins, tariff-related market stabilization, and Beti's global expansion (now in Ireland) could drive upside.

Final Take: A Long-Term Play with Strong Upside

Paycom isn't a “turnaround story”—it's a technology leader undervalued by short-term noise. Investors should look past the tariff-driven volatility and workplace chatter, focusing on its 98% client retention, $2B revenue run rate, and automation-driven margin expansion. With shares trading at 20x forward earnings and a 12% upside to consensus targets, now is the time to buy Paycom for the next leg of its growth journey.

Bottom line: Paycom's stock is a diamond in the rough—polish off the market's overreactions, and you'll find a company poised to thrive.

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