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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