Paycom’s stock price has taken a beating over the past six months, shedding 29% of its value and falling to $165.44 per share. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Paycom, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.

Why Is Paycom Not Exciting?

Even with the cheaper entry price, we're cautious about Paycom. Here are three reasons you should be careful with PAYC and a stock we'd rather own.

1. Weak Billings Point to Soft Demand

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Paycom’s billings came in at $494.7 million in Q3, and over the last four quarters, its year-on-year growth averaged 9.5%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers.

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Paycom’s revenue to rise by 9.4%, close to its 19.7% annualized growth for the past five years. This projection doesn't excite us and implies its newer products and services will not accelerate its top-line performance yet.

3. Shrinking Operating Margin

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Analyzing the trend in its profitability, Paycom’s operating margin decreased by 4.6 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 27.9%.

Final Judgment

Paycom isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 4.2× forward price-to-sales (or $165.44 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. Let us point you toward one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of Paycom

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.