Why Paycom’s latest earnings and capital moves matter for shareholders
Paycom Software (PAYC) has drawn fresh attention after reporting first quarter results with higher sales and net income than a year earlier, reaffirming full year guidance and pairing those updates with ongoing buybacks and a cash dividend.
See our latest analysis for Paycom Software.
That mix of solid first quarter results, reaffirmed full year guidance, active buybacks, and a fresh dividend has helped the stock post a 9.65% 1 month share price return and 13.78% 3 month share price return. However, the 1 year total shareholder return is still down 46.02%, so recent momentum is rebuilding off a weaker long term base.
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So with Paycom trading below some analysts’ price targets and carrying a value score of 5 after a sharp multi year share price decline, is the stock now undervalued, or is the market already pricing in future growth?
Most Popular Narrative: 46.6% Undervalued
According to the most followed narrative on Paycom, a fair value of $260.61 sits well above the last close at $139.18, framing a wide valuation gap that depends on how recurring revenue and margins develop.
New Recurring Revenue is strongly correlated (0.95 R Squared) to Sales and Marketing Expense from the preceding year. We can gauge whether New RR will grow based on the growth in Sales and Marketing Expense.
Want to see what kind of recurring revenue build and margin profile can support that higher fair value, and how much weight is placed on Beti’s rollout and enterprise push across thousands of clients? The full narrative lays out those assumptions in detail and connects today’s share price with that $260.61 view.
Result: Fair Value of $260.61 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, this hinges on Beti adoption translating into stronger recurring revenue and retention, as well as on sales and marketing spend supporting that without pressuring margins.
Find out about the key risks to this Paycom Software narrative.
Next Steps
With both risks and rewards on the table, does the current narrative really match your own view of Paycom? Take a moment to review the data, challenge the assumptions, and then weigh the stock using our breakdown of 4 key rewards and 1 important warning sign
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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