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 summarize the bulls thesis on PAYC. PAYC Technologies, Inc. stock was traded at $172.58 on September 23rdAccording to Yahoo Finance, PAYC’s trailing and forward price/earnings ratios were 20.84 and 19.08, respectively.
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Paycom operates in the Human Capital Management industry, where it offers its platform to small to mid-sized companies with 50 to 2,000 employees. The platform provides a one-stop-shop for companies to manage the entire employee lifecycle, from recruitment to retirement. The platform has a variety of features across different HCM areas, such as talent acquisition, payroll, and HR. While Paycom competes with giants such as ADP, Oracle, SAP, and Workday, its in-house developed solution eliminates integration challenges faced by competitors who rely on third-party systems, giving it a competitive edge. This competitive edge has resulted in a diverse customer base of 36,800 clients for Paycom.
Over the past 12 months, the company generated $1.78 billion in revenue and ~$450 million in profit, with an EPS of $8.25 and an FCF of ~$300 million. Paycom’s earnings have grown at an impressive 20% compound annual rate, outpacing the growth of the Professional Services industry, and the company boasts an excellent return on capital of 33%.
The HCM market that Paycom operates in is expected to grow from $28 billion in 2023 to $63 billion in 2032, with a CAGR of 9.1%. This would bode well for Paycom given its strong market position due to the proven services it provides to businesses. We can expect Paycom’s free cash flow to grow by 10-15% annually over the next decade, making it attractive to potential buyers.
Thus, we can conclude that Paycom is an attractive investment due to its strong market position and competitive advantage, despite the recent fluctuations in its share price and weak outlook.
Paycom Software, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. According to our database, 32 hedge fund portfolios held PAYC at the end of the second quarter, up from 35 in the previous quarter. While we recognize the risk and potential of PAYC as an investment, our conviction is based on the belief that some AI stocks hold more promise to deliver higher returns, and in a shorter time frame. If you’re looking for an AI stock that shows more promise than PAYC but trades at less than 5x earnings, check out our report on the cheapest AI stocks.
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Disclosure: None. This article was originally published on Insider Monkey.