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Paycom Software Inc PAYC

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Morningstar’s Analysis

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Paycom Zooms Past Our Expectations as Client Count Grows; Raise FVE to $306; Shares Overvalued

Nupur Balain Equity Analyst

Analyst Note

| Nupur Balain |

Narrow-moat Paycom Software posted a strong end to fiscal 2020, as revenue and adjusted EPS exceeded our expectations and the high end of management's prior guidance. With "hiring now" ads rising to pre-pandemic levels and a Democratic government promising more fiscal stimulus, we expect to see a recovery in the labor market. This recovery bodes well for Paycom as it charges on a per-employee basis. Much like our reassessment of Paylocity Holding's medium-term growth prospects, we think Paycom also has a strong growth runway ahead. With its focus on small companies with 50 to 2,000 employees, we expect to see material growth in the firm's client count. Due to the time value of money as we roll our valuation model, the firm's impressive quarter, and a change in our view of the firm's long-term profitability and cost management, we are raising our fair value estimate for narrow-moat Paycom to $306 per share from $217 per share. With shares trading at more than $420 per share, we recommend investors wait for a pullback before committing capital to the name.

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Company Profile

Business Description

Paycom Software is a fast-growing provider of cloud-based human capital management applications, serving over 26,500 small- to medium-sized customers. The company's full suite is delivered via the web and includes features such as talent acquisition, time and labor management, payroll, talent management, and HR management.

7501 W. Memorial Road
Oklahoma City, OK, 73142
T +1 405 722-6900
Sector Technology
Industry Software - Application
Most Recent Earnings Dec 31, 2020
Fiscal Year End Dec 31, 2020
Stock Type Speculative Growth
Employees 4,218