Bear of the Day: Paycom Software (PAYC)

It’s never fun when a market darling falls out of favor, especially one that used to print money faster than the Fed during COVID. But that’s exactly what’s happening with today’s Bear of the Day, Paycom Software (PAYC). This once high-flying HR tech stock has been grounded by slowing growth, margin pressure, and increased competition in the payroll software space. If this were an episode of Shark Tank, Kevin O’Leary would be telling them to “take it behind the barn and shoot it.”Paycom has long been a favorite among investors who loved its high-margin, recurring-revenue model and sticky customer base. The company provides human capital management (HCM) solutions all in one integrated cloud platform. For years, it rode the SaaS wave higher, turning HR drudgery into a scalable subscription machine.But lately, that machine’s been sputtering. Revenue growth, once clipping along above 25%, has decelerated sharply. Last quarter, Paycom reported just low-teens top-line growth, missing Wall Street’s expectations. Analysts have since trimmed their forward estimates and those estimate cuts are precisely what push stocks into Zacks Rank #5 (Strong Sell) territory.Paycom Software, Inc. Price and Consensus Paycom Software, Inc. price-consensus-chart | Paycom Software, Inc. QuoteA big part of what makes the Zacks Rank system powerful is that it tracks analyst estimate revisions. Unfortunately, the revisions here are unmistakably bearish. Over the last 60 days, several analysts have slashed their EPS forecasts for both this year and next. The current consensus for fiscal 2025 earnings now sits well below where it was just two months ago.Margins, once north of 40%, have come under pressure as the company spends heavily to retain clients and fend off growing competition from the likes of Paylocity (PCTY), ADP, and Workday (WDAY). Meanwhile, a sluggish hiring environment means fewer paychecks to process, which means fewer dollars flowing through Paycom’s system.Here’s the irony: Paycom’s biggest threat might be itself. The company rolled out “Betty,” its automated payroll platform, designed to revolutionize how HR departments run payroll by eliminating manual input. The problem? Many of Paycom’s existing customers are transitioning to Betty, which actually reduces their usage fees. The innovation cannibalized the cash cow.When your best new product makes your old one obsolete, Wall Street doesn’t cheer,  it runs for cover. Analysts have been quick to notice that Betty’s rollout, while strategically sound for the long term, is crushing near-term growth.Once upon a time, investors were happy to pay sky-high multiples for hypergrowth names like PAYC. Now, that multiple compression is brutal. The stock’s forward P/E has fallen from the 70s down to the low 20s, and that’s assuming the estimates stop dropping. If earnings get revised down again, those “cheap” multiples could suddenly look expensive.Paycom Software is learning the hard way that in a maturing SaaS landscape, growth without leverage doesn’t get rewarded anymore. The Zacks Rank #5 (Strong Sell) tells the story clearly. Analysts are moving in the wrong direction, expectations are sliding, and sentiment has soured.Sure, long-term investors might argue Paycom’s sticky customer base and best-in-class tech will eventually stabilize results. Maybe. But for now, with estimate revisions heading south and the stock trading below key support, this looks more like a “sell the bounce” situation than a “buy the dip.”Zacks Names #1 Semiconductor StockThis under-the-radar company specializes in semiconductor products that titans like NVIDIA don't build. It's uniquely positioned to take advantage of the next growth stage of this market. And it's just beginning to enter the spotlight, which is exactly where you want to be.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $971 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Workday, Inc. (WDAY): Free Stock Analysis Report Paycom Software, Inc. (PAYC): Free Stock Analysis Report Paylocity Holding Corporation (PCTY): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks