THE WORKDAY CAFE
Paycom Software Inc. (PAYC) Valuation
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Executive Summary
Paycom Inc. is a cloud-based human capital management solution firm that provides end-to-end Sass HCM software. The majority of its revenue is made through payroll processing but it's product range is vertically integrated into almost all human resource capabilities. The firm is overvalued through its relative valuation peers but undervalued using the discounted cash flow model. The company as a whole is witnessing slowing revenue growth and rising depreciation and amortization costs.
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$183.00 - Value (PPS) from Industry Relative Value
$254.44 - Value (PPS) from Financial Relative Value
$345.87 - Value (PPS) from Discounted Cash Flow
$269.58 - Reconciled Share Price Estimate
When comparing to Paycom's current share price of $286.53, a sell recommendation is issued.
Table of Contents
- Company Overview
- Revenue Segments
- The Customers
- Future Strategies
- SWOT Analysis
Company Overview
Paycom Software Inc. (PAYC) currently trades on the NYSE with a current price of $286.53, a market cap of 16.46 Billion, and has a fiscal year end of December 31st. All information is in millions of USD except for share prices or marked otherwise.
Revenue Segments
Revenues are comprised of recurring revenues, and implementation and other revenues.
- $724,428 - Recurring
- $13,243 - Implementation and Other
The Customers
Paycom's consumers range from small, medium and large companies looking for HR software to better their employee experience.
Future Strategies
- Paycom's continued growth depends on attracting new clients through further penetration of existing markets
- geographic expansion into new markets
- targeting a high degree of client employee usage across their solution
- introducing new applications to existing client base
Sources: Paycom Software Inc.'s 10K & Bloomberg
SWOT Analysis
Strengths
- Superb Performance in New Markets
- Successful track record of developing new products – product innovation
- Automation of activities brought consistency of quality to Paycom Software, Inc. products and has enabled the company to scale up and scale down based on the demand conditions in the market
- Highly skilled workforce through successful training and learning programs
Weaknesses
- The company has not being able to tackle the challenges present by the new entrants in the segment and has lost small market share in the niche categories
- Investment in Research and Development is below the fastest growing players in the industry
- Not very good at product demand forecasting leading to higher rate of missed opportunities compare to its competitors
Opportunities
- The new technology provides an opportunity to Paycom Software, Inc. to practices differentiated pricing strategy in the new market
- Organization’s core competencies can be a success in similar products field
Threats
- New technologies developed by the competitor or market disruptor could be a serious threat to the industry in medium to long term future
- Imitation of the counterfeit and low quality product is also a threat to Paycom Software, Inc.’s product especially in the emerging markets and low income markets
Source: fernfortuniversity.com
Disclaimer
The Workday Cafe is not a registered investment, legal or tax advisor or a broker/dealer. All investment/financial opinions expressed by The Workday Cafe are from the personal research and experience of the evaluator and are intended for informational purposes only. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.