Payroll and human resources software provider Paycom was lauded as the next big thing back in 2021. But time has not been kind to the company and its investors, with share prices down by an eye-popping 74% since then. Paycom is continuing to grow, but at a sluggish 11% YOY. However, some analysts feel that the decline was temporary, and that the company is about to surge again. Here’s why.
Why Paycom Bottomed Out
Paycom decided to take a big risk with the introduction of its self-service employee payroll platform, Beti. Some would argue that the platform works too well, as many companies are hitting their desired ROI solely with Beti, decreasing demand for Paycom’s other lines of service. This led to a drop in revenue that spooked investors, especially when combined when the overall economic uncertainty of the past few years.
Is Paycom Too Risky for Traders?
Paycom’s risk may be starting to pay off. The company’s overall value is a lot higher today than it was before Beti was introduced, and it’s only likely to grow as new users come on board. Importantly, Paycom continues to be highly profitable. In the first quarter of 2024, the company’s net income margin was close to 30%, with free cash flow of around $100 million. Some would argue that Paycom was overvalued during its 2021 high, and that its current price-to-sales (P/S) ratio of about 19 is far more reasonable.
All this means that there is a lot of potential upside for investors who buy in now. However, it could take some time to see strong returns, and there will likely be some continued periods of sluggishness along the way. It could be a good bet for long-term investors who are ready to ride the wave, but short-term traders looking for rapid growth may do best to look elsewhere.
Neither Lisa Fritscher nor Stocks.News have positions in the companies covered in this article. Please see our disclosure page for more information.
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Contributing Writer
Lisa Fritscher has been a contributing writer for App.Stock.News since 2024. Lisa has been interested in investing since winning The Stock Market Game in high school. In more than a decade as a professional writer, she has written consumer-facing financial information and advice articles for a wide variety of publications. She has a Bachelor of Arts in Psychology from the University of South Flori...