We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Paycom (PAYC) Dips 23% YTD: What Should Investors Do Now?
Read MoreHide Full Article
Paycom Software, Inc. (PAYC - Free Report) has witnessed a challenging year, with its stock down more than 23% year to date (YTD), significantly underperforming the broader market. In contrast, the S&P 500 and the Zacks Computer and Technology sector have seen gains of 17.6% and 22.5%, respectively.
Paycom's performance has also lagged behind key competitors like SAP SE (SAP - Free Report) , Automatic Data Processing, Inc. (ADP - Free Report) and Paychex, Inc. (PAYX - Free Report) , which have posted YTD gains of 40.9%, 13.5% and 5.2%, respectively.
This disparity has left investors wondering whether it's time to cut losses or stay firm.
YTD Price Return Performance
Image Source: Zacks Investment Research
Attractive Valuation: A Silver Lining
Despite the recent downturn, Paycom's current valuation presents a compelling opportunity. The stock is trading at $158.55 as of Aug 20, 2024, a significant 47% drop from its 52-week high of $299.00 reached in September 2023.
This sharp decline has brought Paycom’s forward 12-month price-to-earnings (P/E) ratio down to 18.91, notably lower than the Zacks Internet - Software industry average of 32.61. Such a valuation suggests that the market may be undervaluing Paycom’s long-term potential, making it an attractive proposition for patient investors.
Image Source: Zacks Investment Research
Technical Indicators Point to Potential Upside
From a technical perspective, Paycom's shares are trading above their 50-day moving average. This is typically seen as a bullish signal, indicating the possibility of upward momentum in the short term. Investors with a long-term horizon could benefit from this potential near-term upside, especially if broader market conditions remain favorable.
Moving Average
Image Source: Zacks Investment Research
Challenges to Revenue Growth: A Concern
One of the most significant challenges faced by Paycom is its slowing sales growth. The company’s once-strong double-digit sales growth has slowed dramatically, with only 10.7% and 9.1% growth in the first and second quarters of 2024, respectively.
This slowdown is not just a minor hiccup but could be indicative of broader issues, including industry-wide headcount reductions and tighter corporate budgets. These factors are likely dampening demand for Paycom’s human capital management solutions, limiting its ability to drive revenues through upselling and cross-selling.
Additionally, Paycom is facing increased competition from rivals like SAP, Automatic Data Processing and Paychex, who are aggressively expanding their product offerings. This heightened competitive intensity is making it harder for PAYC to maintain its market share and pricing power, which could further pressure its revenue growth in the coming quarters.
The current Zacks Consensus Estimate paints a concerning picture, predicting that Paycom’s top-line growth will settle into a low-double-digit percentage range for 2024 and 2025.
Conclusion: A Strategic Hold
Given the mixed outlook, Paycom's stock is a strategic hold for now. While slowing sales growth and rising competition are significant concerns, the current valuation and technical indicators suggest that this Zacks Rank #3 (Hold) stock may be oversold. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Investors should keep an eye on the company’s ability to navigate these challenges. However, for those with a long-term view, holding on to Paycom could prove rewarding as the company works to regain its growth trajectory.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Paycom (PAYC) Dips 23% YTD: What Should Investors Do Now?
Paycom Software, Inc. (PAYC - Free Report) has witnessed a challenging year, with its stock down more than 23% year to date (YTD), significantly underperforming the broader market. In contrast, the S&P 500 and the Zacks Computer and Technology sector have seen gains of 17.6% and 22.5%, respectively.
Paycom's performance has also lagged behind key competitors like SAP SE (SAP - Free Report) , Automatic Data Processing, Inc. (ADP - Free Report) and Paychex, Inc. (PAYX - Free Report) , which have posted YTD gains of 40.9%, 13.5% and 5.2%, respectively.
This disparity has left investors wondering whether it's time to cut losses or stay firm.
YTD Price Return Performance
Image Source: Zacks Investment Research
Attractive Valuation: A Silver Lining
Despite the recent downturn, Paycom's current valuation presents a compelling opportunity. The stock is trading at $158.55 as of Aug 20, 2024, a significant 47% drop from its 52-week high of $299.00 reached in September 2023.
This sharp decline has brought Paycom’s forward 12-month price-to-earnings (P/E) ratio down to 18.91, notably lower than the Zacks Internet - Software industry average of 32.61. Such a valuation suggests that the market may be undervaluing Paycom’s long-term potential, making it an attractive proposition for patient investors.
Image Source: Zacks Investment Research
Technical Indicators Point to Potential Upside
From a technical perspective, Paycom's shares are trading above their 50-day moving average. This is typically seen as a bullish signal, indicating the possibility of upward momentum in the short term. Investors with a long-term horizon could benefit from this potential near-term upside, especially if broader market conditions remain favorable.
Moving Average
Image Source: Zacks Investment Research
Challenges to Revenue Growth: A Concern
One of the most significant challenges faced by Paycom is its slowing sales growth. The company’s once-strong double-digit sales growth has slowed dramatically, with only 10.7% and 9.1% growth in the first and second quarters of 2024, respectively.
This slowdown is not just a minor hiccup but could be indicative of broader issues, including industry-wide headcount reductions and tighter corporate budgets. These factors are likely dampening demand for Paycom’s human capital management solutions, limiting its ability to drive revenues through upselling and cross-selling.
Additionally, Paycom is facing increased competition from rivals like SAP, Automatic Data Processing and Paychex, who are aggressively expanding their product offerings. This heightened competitive intensity is making it harder for PAYC to maintain its market share and pricing power, which could further pressure its revenue growth in the coming quarters.
The current Zacks Consensus Estimate paints a concerning picture, predicting that Paycom’s top-line growth will settle into a low-double-digit percentage range for 2024 and 2025.
Conclusion: A Strategic Hold
Given the mixed outlook, Paycom's stock is a strategic hold for now. While slowing sales growth and rising competition are significant concerns, the current valuation and technical indicators suggest that this Zacks Rank #3 (Hold) stock may be oversold. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Investors should keep an eye on the company’s ability to navigate these challenges. However, for those with a long-term view, holding on to Paycom could prove rewarding as the company works to regain its growth trajectory.