➡️ This is a step-by-step stock review to determine if Paycom (PAYC) stock is a good buy. In this article, we’ll help you understand the company, where the company is going, the competition, and the leadership. This way you can make a more confident investment decision.
Paycom is a payroll and human resource technology company founded in 1998, headquartered in Oklahomo City, OK, and has office locations in the US.
Table of Contents
- Step 1: Tykr Rating
- Step 2: Paycom Company History
- Step 3: Paycom Business Model
- Step 4: Paycom News
- Step 5: Paycom Competition
- Step 6: Paycom 4Ms
- Step 7: Is Paycom (PAYC) stock a good buy?
➡️ Goal: When you look at a stock, the first step is to look at the financials. Fortunately, Tykr does this for us automatically. The higher the score, the stronger the financials and the safer the investment. The higher the MOS, the higher the potential returns you can make.
- Summary: Watch
- Score: 78/100
- MOS: 0%
- Share Price: $303
- Fair Value: $310
Step 2: Paycom Company History
➡️ Goal: It’s important to know the company’s history. This helps us understand the various revenue streams, if they acquired other companies, how they grew through difficult times, and how they separated themselves from the competition.
- In 1998, Chad Richison founded Paycom as an online SaaS payroll service provider business. In fact, they were one of the earliest SaaS payroll providers.
- In 2001, Paycom added human resource management to the SaaS platform.
- In 2011, Paycom moved its headquarters to a new 90,000-square-foot office building, remaining in Oklahoma City.
- In 2011, they added E-Verify, onboarding, expense management, and document storage to the SaaS platform.
- In 2012 and 2013, Inc recognized Paycom as a Top 100 job creator and one of the fastest-growing private companies over the previous six years.
- In 2014 and 2015, Paycom won HR.com’s Leadership 500 Excellence Awards.
- In 2015 and 2016, Paycom made Deloitte’s Technology Fast 500 list.
- In 2015, Paycom ranked #28 on Glassdoor’s Best Places to Work in the US.
- In 2014, Paycom went public.
- In 2019, Wall Street Journal named Paycom as the Best Managed Company of the Year.
- In 2019, Paycom was added to the S&P 500.
- In 2021, Paycom was named the best place of employment for women.
- In 2021, Paycom announced the release of Beta, a system that allows employees to complete their own payroll.
- In 2022, Paycom held a grand opening ceremony for a new 150,000-square-foot operations center in Grapevine, TX.
How does Paycom make money?
➡️ Goal: It’s important to know how a company makes money. A mature business model has multiple streams of revenue which allow the company to weather downturns in the economy.
Paycom is an enterprise SaaS platform with an impressive suite of products that fall within 5 categories.
- Talent acquisition
- Time and labor management
- Payroll
- Talent management
- HR management
Talent Acquisition Applications
The following tools and features include:
- Applicant Tracking – Allows clients to manage job postings, track candidates and automate job alerts.
- Candidate Tracker – Allows recruiters to stay connected with potential candidates through an online database.
- Enhanced Background Checks – Allows employers to screen candidates efficiently.
- Onboarding – Streamlines the hiring process by creating online checklists for tasks to be assigned to new hires.
- E-Verify – Automates employment verification and reduces exposure to audits and penalties.
- Tax Credit Services – Helps employers calculate available federal tax credits for hiring employees who meet various qualifications.
Time and Labor Management
The following tools and features include:
- Time and Attendance – Helps clients manage employee work hours accurately and efficiently. Customized rules, batch editing, and timecard management tools are available for managing complex time and attendance needs. Employees can clock in and out using web-based time clocks, biometrics, badge swipe, or other types of hardware terminals.
- Scheduling/Schedule Exchange – Allows managers to automate employee scheduling and create templates for different pay classes.
- Time-Off Requests – Managers can use an online calendar to easily monitor and approve or deny time-off requests. The application also allows employees to view their available time off, submit requests, and see the status of their requests. There is also a feature called the Employee Self-Service that allows employees to view any blackout dates and manager comments related to their time off requests.
- Labor Allocation – Simplifies the process of setting up and tracking employee hours.
- Labor Management Reports/Push Reporting – Provides clients with detailed information on labor force management, including but not limited to overtime and labor distribution.
- Geofencing/Geotracking – Two location-based technologies that are used to enhance Paycom’s time and attendance solution. Geofencing allows employers to establish geographical boundaries within which their employees are authorized to clock in and out when using Paycom’s web time clock on smartphones, tablets, or other electronic devices. This tool helps combat time theft by ensuring that employees are only clocking in and out from authorized locations.
- Microfence – Microfence, Paycom’s Bluetooth® beacon, offers a convenient and contactless way for employees to clock in and out on their mobile app. By using the Bluetooth signal emitted from the beacon, the app can detect when the employee is within a defined radius and automatically record their clock-in or clock-out time. This eliminates the need for employees to wait in line at a communal hardware clock and minimizes physical contact with shared surfaces.
Payroll
The following tools and features include:
- Beti (Better Employee Transaction Interface) – Beti is a unique and innovative tool that allows employees to take charge of their own payroll processing, resulting in increased efficiency and decreased errors. By giving employees control over their paycheck information, including managing timecards, expenses, PTO requests, and benefits, this tool streamlines the entire payroll process. Employees are guided through the steps required to access, view, manage, troubleshoot, and approve their paychecks before payroll is submitted. This empowers employees and reduces the burden on HR, freeing up their time to focus on more strategic initiatives.
- Payroll and Tax Management – This is the foundation of the Paycom SaaS. All clients use this application to access the other applications under the Paycom umbrella.
- Paycom Pay – Paycom Pay issues checks to employees.
- Expense Management – The expense management application eliminates the manual, paper-based processes associated with employee expense reimbursement and allows employers to control and monitor expenses by setting up clearly defined rules and parameters for employee reimbursement. Employees can upload or email photos of receipts for reimbursement and expenses are automatically parsed when submitted.
- Mileage Tracker/FAVR – The Paycom mobile app includes mileage tracker capability, allowing employers to more accurately track, log and manage employees’ mileage reimbursements which are then automatically updated within the expense management applications. FAVR (Fixed and Variable Rate), allows our clients to customize their mileage reimbursement rate, according to IRS guidelines, to ensure accurate employee reimbursement for business miles without overpaying on reimbursements.
- Garnishment Administration – Mitigates the risk of penalties and lawsuits from employees and agencies.
- GL Concierge – Offers organizations more control and transparency into their payroll general ledger and gives finance professionals intuitive reporting, enriched audit trails, customizable file layouts, and real-time alerts.
Talent Management
The following tools and features include:
- Employee Self-Services – Available in English or Spanish, this tool improves employee engagement by empowering employees to self-manage certain transactions, obtain quick answers to frequent payroll and HR questions, access their pay history, view performance goals and reviews, and view total compensation reports that show their compensation and benefits package.
- Compensation Budgeting – Provides compensation and performance information in one interface. This provides clients with valuable workforce insight to help manage salary budgets and establish merit-based compensation increases.
- Performance Management – Allows employees to set standardized pay grades and performance goals for positions across an organization, helping align company goals with workforce goals. The application also helps streamline the performance review process with online facilitation of the review process and links performance to pay.
- Position Management – Provides customizable tools to categorize personnel, increasing consistency and organization company-wide. The system ties job attributes to a specific position within the organization, not an individual employee, which frees up time to focus on people instead of antiquated processes.
- My Analytics – Offers workforce insight in a variety of report formats. The comprehensive report data provides the workforce intelligence needed to drive human capital decisions at all levels of management. Within the application is an employment predictor. This sophisticated machine learning tool gives an employer greater insight into employees at risk of leaving the organization.
- Paycom Learning and Content Subscriptions – Delivers a smart, simple, data-driven experience that organizes and standardizes client training processes. This allows them to quickly adapt in an ever-changing business environment.
HR Management
The following tools and features include:
- Manager on-the-Go – Provides supervisors and managers with the ability to perform a variety of tasks, such as approving time-off requests and expense reimbursements – anytime, anywhere. The tool also allows managers to view their team’s time-off calendar, edit and approve punch-change requests, manage employees’ schedules and respond to employee inquiries.
- Direct Data Exchange – This analytics tool gives employers insights into efficiencies gained through employee usage of HR technology and provides a real-time return on investment on that usage (based on research and results from EY). Using the Direct Data Exchange (DDX) tool, employers not only can see the cost savings associated with changes made by employees, but they can also drill down into specific aspects of the software, including time and attendance, benefits, expenses, time-off requests, tax and payroll modifications, to determine exactly where additional savings can be achieved.
- Ask Here – The Ask Here tool gives all client employees a direct line of communication to ask work-related questions of their company representatives and receive timely answers, all through the convenience of our self-service technology. This tool also includes a central repository for employee questions, a convenient dashboard, guided inquiry templates, the ability to attach documents and photos, and autosaved responses for frequently asked questions.
- Documents and Checklists – Allows employees to digitally sign and view documents.
- Government and Compliance – Help clients reduce exposure to violations, audits, and penalties with respect to employment laws.
- Benefits Administration/Benefits to Carrier – Allows clients to customize benefit plan setup, deduction amounts, enrollment dates, and new-hire waiting periods.
- Benefit Enrollment Service – Provides clients with a dedicated coordinator to help make open enrollment even easier.
- COBRA Administration – Helps protect employers from COBRA violations and related fines and penalties.
- Personnel Action Forms and Performance Discussion Forms – Helps reduce the clients’ time and paperwork required to make employee changes including pay rate, position, and title changes.
- Surveys – Allows employers to create and send surveys to employees.
- Enhanced ACA (Affordable Care Act) – Provides clients with access to dashboards to track employee count, status, and health care plan affordability.
- Clue – Helps clients securely collect, track, and manage vaccination and test data.
➡️ Goal: It’s important to highlight important company-specific news as well as industry-specific news over the last month and year. We don’t need daily news on a company to make buy or sell decisions because we’re investors, not traders. Overall, we want sufficient news to understand where a company and industry are heading over the next year or few years.
This article from fool.com lists two cloud stocks to buy for long-term investors. Those two stocks include TEAM and PAYC. Paycom is listed because they have sky-high customer satisfaction and low customer acquisition costs. They also have annual revenue retention of 93% which means 93% of customers renew from one year to the next.
This article from fool.com lists 4 supercharged tech stocks to buy without hesitation. These stocks include ABNB, DOCN, PAYC, and NOW. Paycom is listed because they now serve over 6.5 million employees across its 36,600 clients and have seen a year-over-year revenue growth rate of 33% over the last 10 years.
This article from zacks.com states that Paycom has recently rolled out its new Global HCM platform that allows businesses and their domestic and international employees to manage human resources needs within one easy-to-use system which avoids multiple logins for multiple systems.
➡️ Goal: It’s important to understand who the competitors are and how their financials rank against this company. Try to find 5 other competitors to rank against based on Score. The best way to find competitors is to Google “XYZ competition” and replace XYZ with the company name. You can also go to Tykr and click on the “Similar Stocks” tab on each stock to see similar companies in the same industry.
Paycom
- Summary: Watch
- Score: 78/100
- MOS: 0%
- Share Price: $303
- Fair Value: $310
- Revenue: $1.3B
Paylocity
- Summary: Watch
- Score: 89/100
- MOS: 0%
- Share Price: $183
- Fair Value: $222
- Revenue: $852M
Workday
- Summary: Watch
- Score: 50/100
- MOS: 0%
- Share Price: $182
- Fair Value: $245
- Revenue: $6.2B
Paychex
- Summary: Watch
- Score: 61/100
- MOS: 0%
- Share Price: $107
- Fair Value: $115
- Revenue: $6.2B
Paycor
- Summary: Watch
- Score: 50/100
- MOS: 0%
- Share Price: $23
- Fair Value: $26
- Revenue: $429M
ADP
- Summary: Watch
- Score: 50/100
- MOS: 0%
- Share Price: $211
- Fair Value: $227
- Revenue: $16B
Ranking based on Score
- Paylocity – 89/100
- Paycom – 78/100
- Paychex – 61/100
- Workday – 50/100
- ADP – 50/100
- Paycor – 50/100
➡️ Goal: All of our homework on this company leads up to the 4M checklist. A lot of investors only look at the numbers. Yes, it’s important to look at the first M (MOS) which is the math part of investing but it’s also important to look past the numbers and also look at the business, the competition, and the management. If all 4Ms pass, we should have high confidence in buying this stock.
✅ MOS: The financials are strong with a 78/100 but the MOS is still 0% which tells us we want to see the EPS growth rate increase. Because of the stronger score, I’m still giving this stock a pass with the first M.
✅ Meaning: Paycom offers a wide range of B2B enterprise SaaS products and features for a wide variety of industries. B2B enterprise SaaS products are highly sticky. With Paycom, It’s important to highlight that 93% of customers renew from one year to the next.
✅ Moat: There are a lot of competitors in the HR tech industry. As companies continue to scale and add staff, the need for HR tools will continue to remain in demand and Paycom has a strong portfolio of tools to help a lot of companies. The big question I can’t answer right now is how will Artificial intelligence impact the workforce. As AI becomes more popular, does this mean more companies will leverage AI to do the work which means fewer employees will be required at a company? I personally don’t see a threat over the next 5 years but over the next 10 years, HR tech companies may not see the same demand. This is worth paying attention to.
❌ Management: Prior to founding Paycom in 1998, Founder and CEO Chad Richison worked in the payroll industry and observed a lot of inefficiencies. This motivated him to create a SaaS solution to start solving these problems. In 2015 the company was ranked #28 on Glassdoor’s Best Places to Work in the US and in 2021 they were named the best place of employment for Women. That same year, he was the highest-paid CEO of the year, earning $211M, primarily in stock. When looking at Glassdoor, the company score is 3.5/5.0 and the CEO Approval of Chad Richison is only 65%. Ideally, we want to see a company score of 4.0 or higher and CEO approval of 80% or higher. When I did a deep dive into the reviews, I found some alarming feedback. Some of the comments in 2023 included the removal of bonus programs, lack of trust, corporate politics, micromanagement, high turnover, high-pressure sales, and an increasingly unfriendly environment. Even employees are baffled at how the company has been awarded “best place to work” when the reality is, the exact opposite is occurring. For these reasons, management needs to make some improvements. If I were the CEO, I would get closer to employees at all levels of the company and ask questions about what can we do better.
Step 7: Is Paycom stock a good buy?
I have to say no. Although the score is strong the business model is a necessity today, there are two reasons why I wouldn’t buy this stock.
#1 – Where will HR tech be in 10 years? As AI becomes more popular, the need to hire more people may decline. This means the demand for HR tech may also decline.
#2 – The Glassdoor reviews are awful. I wouldn’t want to work at this company or invest in it, for this reason alone. As of the date of this article, I own shares of Paylocity (PCTY) which happens to have a higher score in Tykr and Glassdoor company rating of 4.0/5.0 and CEO approval of 88%. This is a significant difference. If you like HR tech, I would turn your attention to Paylocity.
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