legrandangle-lgm

Premium content from Motley Fool Share Advisor UK

Our monthly Fire Best Buys Now are designed to highlight our team’s three favorite, most timely Buys from our growing list of growth-oriented Fire recommendations to help Fools grow their portfolios.

• Since peaking at a record high north of $547 per share in November 2021, the payroll and human capital management software company’s stock price has fallen nearly 70%. Paycom’s price-to-earnings ratio has fallen from a peak of 182 at the end of 2020 to its current value of around 28.
• In Paycom’s most recent earnings call, CEO Chad Richison mentioned a 2,500-employee client that recently adopted Beti and has since cut its payroll team in half. Before Beti, the client payroll process took four days; now it only takes a few hours.
• Despite slowing growth and revaluation, we believe Paycom is still a worthwhile investment. The company is still growing, with management guidance for 2024 revenue implying 10.5% year-over-year growth. This would mark a return to growth acceleration, indicating that the trend of slowing growth has stabilized.
• Furthermore, the company remains highly profitable, with trailing twelve months operating and net margins of 26% and 20% respectively (including a one-time adjustment related to share-based compensation). Management has intelligently taken advantage of the declining share price, spending a total of $93.2 million on share buybacks in the first two quarters of 2024, driving per-share growth.
• Even taking into account the big share price drop in recent years, Paycom has been an excellent investment over its history as a publicly traded company. Since its initial public offering in April 2014 through today, Paycom stock has returned 1,428%, surpassing the S&P 500’s 225% return over the same period.