Paycom: Quality, growth, and a small macro tailwind

Paycom is a SAAS payroll company. It competes with ADP, Paychex, and the 100s of other payroll providers in the U.S. The business is scaled, as in it has ~40% EBITDA margins, and subscription like revenues with a 94% retention rate.

• Paycom's products key differentiator is that it provides customers with an all-in-one HCM solution that runs on a single database in the cloud, thereby eliminating the complexities, costs and headaches caused by multiple systems.

• The second differentiator is Paycom’s sales force, which enables Paycom to displace incumbents.

• PAYC looks to have sufficient tailwinds, and a sales team / execution that makes them likely to continue to compound at a fast rate. ~25% in 2023. Plus we see continued high growth via market share gains in a market growing at ~6% in the years following.

We like the macro setting

• Low unemployment means it is even more important for SMB employers to offer benefits to retain employees.

• Rising rates is a tailwind for earnings due to interest on float at ~100% incremental margin.

We think PAYC is positioned to beat street EPS estimates.

Potential Upside: $390 (+33%)

Sensible Downside: $250 (-15%)

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