PAYC — The cheapest HR/payroll SaaS stock on every multiple, with 87% gross margins and a 7.66% FCF yield

Stock: Paycom Software, Inc. (NYSE: PAYC) | Sector: Technology / Application Software / HCM & Payroll SaaS | Market cap: ~$5.82B 1

Price (Jun 20, 2026 close): $124.85 | 52-week range: $104.90–$248.95 | Next earnings: Aug 5, 2026 (after market close) 2

Six candidates entered today's screen. One cleared all three gates.

The other five candidates: CAT failed on valuation (P/E 49.09×); DUK, SO, AEP, and ROP all failed the ROE gate (none sustained three consecutive years above 15%).

ROE methodology note: Figures use StockAnalysis's average-equity method. SEC EDGAR XBRL for PAYC (CIK 0001590955) was accessed but the key financial metrics fell in the truncated portion of the 2.3MB payload; cross-verification via individual concept endpoints (e.g., /api/xbrl/companyconcept/CIK0001590955/us-gaap/NetIncomeLoss.json) was not completed in this research cycle. StockAnalysis is the primary source for all PAYC financial data in this article. 5

Paycom Software, founded in Oklahoma City in 1998 by Chad Richison, sells a single-database human capital management (HCM) platform to mid-market employers — companies roughly in the 50–10,000 employee range. 6 The platform covers the full employment lifecycle: recruitment, onboarding, time and attendance, benefits administration, payroll, HR analytics, and talent management — all drawing from one unified employee record rather than a patchwork of modules stitched together through integrations.

That architecture matters because payroll errors trace overwhelmingly to stale or mismatched data moving between systems. Paycom's competitive differentiation has long rested on eliminating those handoffs. The company's Beti (Better Employee Transaction Interface) product takes this further by pushing payroll review to employees directly — workers can preview their paycheck before it runs and flag errors, reducing post-payroll corrections and support costs. This shifts some of the reconciliation burden from the employer's HR team to the individual, which Paycom argues reduces error rates at the source rather than catching mistakes after the fact. 2

FY2025 revenue was $2.052 billion, up from $1.056 billion in FY2021. 6 Unlike ADP (NYSE: ADP — enterprise and lower-market) or Paychex (NASDAQ: PAYX — primarily SMB), Paycom built its business vertically in the mid-market with direct sales rather than resellers, which generates higher per-client revenue but limits total addressable market relative to ADP's broad enterprise reach.

The ROE path across FY2023–FY2025 is not a straight line. The FY2024 peak at 34.87% was driven by exceptional net income growth (+47.3% to $502M) partly enabled by an anomalous stock-based compensation reversal (-$22.9M in FY2024 vs. +$118.7M in FY2025). FY2025 ROE returned to FY2023 levels as SBC normalized and operating margin compressed. The TTM reading of 36.94% is the highest in the series, but is now partly amplified by the leveraged buyback program that has shrunk the equity base from $1,732M to $811.7M. 3

Two distinct forces drove the FY2025 ROE dip worth separating: (1) net income fell 9.7% as SBC normalized from that anomalous FY2024 figure, and (2) average equity was still elevated relative to where it is today, before the buyback program fully compressed the denominator. The TTM jump to 36.94% reflects both a partial net income recovery (+$16.3M from the FY2025 base) and a much-reduced equity base. Neither the peak nor the trough should be taken as the run-rate — a normalized reading accounting for both SBC and the buyback's equity effect lands somewhere in the mid-to-upper 20s on organic operating performance.

Source: 4

FCF has grown every year through the slowdown — from $292M in FY2023 to $446M TTM, a 52.4% increase over three years. FCF margin expanded from 17.3% to 21.3% over the same period, driven by operating cash flow growing faster than capital expenditure. The FY2025 CapEx increase from $192.9M to $270.9M (a 40.4% jump) warrants attention — it likely reflects data center and technology infrastructure investment. OCF growth of 27.2% outpaced that CapEx acceleration, so the margin still expanded. The TTM CapEx pulling back slightly to $264.4M from FY2025's $270.9M suggests the infrastructure build-out may be moderating.

FCF yield of 7.66% at the current market cap of $5.82B is the highest in PAYC's public history. 1 For context, the peer-group FCF yields at time of this screen: ADP ~6.1%, PAYX ~5.8%, PCTY ~4.6%. PAYC's FCF yield premium to its closest comparables runs roughly 130–310 basis points.

Annual dividend: $1.50/share ($0.375/quarter), yield 1.20%, payout ratio 17.5%. 1 The dividend consumes a small fraction of FCF — sustainable at essentially any plausible FCF trajectory.

PAYC traded as a high-growth SaaS stock for most of its public life, commanding multiples reflecting 20-30%+ revenue growth expectations. The deceleration to sub-10% growth triggered a multiple collapse:

Source: 3

The 5-year average is skewed by those pre-deceleration years. A more relevant comparison is the FY2024–FY2025 range (~20–23×), which already embedded the growth-slowdown reality. The current 14.59× is 35–37% below even those post-deceleration multiples — and the forward P/E of 11.04× implies the market expects continued multiple compression, not expansion. 1

PAYC trades at a 28–33% discount to peers on P/E, a 25–33% discount on EV/EBITDA, and a 11–50% discount on P/S — while carrying the highest gross margin in the group by 14 percentage points and the second-highest ROE (after ADP's equity-compressed 71%). The ADP ROE caveat: ADP's equity base is heavily distorted by decades of buybacks and intangibles; ROIC at ADP (~35%) is a better operational comparison. On that basis, PAYC's double-digit gross margin advantage is the more meaningful differentiator.

PEG ratio: 0.88× (based on consensus forward EPS growth of ~12.7% annually). 1 A PEG below 1.0 is rare for any profitable SaaS company; PAYC's sitting at 0.88 reflects the combination of very low absolute P/E and above-average expected EPS growth.

The valuation collapse and the growth deceleration are inseparable. PAYC went from 30%+ annual revenue growth in FY2022 to sub-10% by FY2025. That reset destroyed the multiple justified by the growth rate — from there, the question is whether the deceleration has reached its floor.

Source: 6

Three data points stand out in this table. First, gross margin has been resilient throughout the deceleration — it has never dipped below 84% and reached 87.6% TTM, exceptional for any software company and essentially unmatched among HCM peers. Second, operating margin compressed sharply from the 33.7% FY2024 peak to 27.7% in FY2025 as SBC normalized — but TTM recovered 60 basis points to 28.3%, suggesting the FY2024 figure was a one-time benefit rather than the baseline. Third, TTM revenue growth at 9.4% is slightly above FY2025's 9.0% — a tentative stabilization signal, not a reacceleration.

Analyst consensus for the next three years: revenue growth of ~7.2% annually, EPS growth of ~12.7% annually. 1 The spread between EPS and revenue growth (roughly 5+ percentage points) reflects buyback-driven share count reduction layered on top of operating leverage. If that EPS growth rate materializes and the multiple stays flat at 14.59×, shareholders collect EPS growth plus the 1.2% dividend — an implied ~14% annual total return without any multiple expansion.

The most significant change in PAYC's financial profile over the past twelve months is its capital allocation pivot. The company entered FY2025 with $90.3M in total debt and a pristine D/E ratio of 0.04×. By Q1 2026, it had taken on $675M in short-term debt and spent $1.425 billion on stock repurchases. 10

Source: 10

The D/E of 0.91× sounds alarming given that PAYC was essentially debt-free eighteen months ago. The interest coverage of 89.74× puts that in context: the company earns nearly 90 dollars of operating profit for every dollar of interest expense. Net Debt/EBITDA of 0.78× is conservative — the same ratio at WM (waste infrastructure, covered June 19) runs at over 3×. The debt is primarily short-term and was deployed to buy back approximately 17% of shares outstanding. 10

PAYC carries no formal credit rating from Moody's or S&P — the company has historically been cash-generative enough to not need public debt markets. That is now changing. The absence of a formal credit rating is a data gap; the Altman Z-Score of 3.21 (the model's safe-zone threshold is above 2.99) and interest coverage of 89.74× suggest the credit profile is strong, but investors accustomed to formal ratings will need to rely on those proxy metrics.

Paycom competes in a market segment where scale and switching costs are the primary defenses. The mid-market HCM space sits between the enterprise-focused ADP (Nasdaq: ADP) and the SMB-focused Paychex (Nasdaq: PAYX) on one axis, and all-in-one cloud platforms like Workday (Nasdaq: WDAY) and SAP SuccessFactors on another.

The differentiation Paycom claims is architectural: a single database means an employee's hiring date, current salary, time-off balance, and tax withholding all exist in one record, not three systems that need to be reconciled at payroll run time. Most mid-market competitors — and even some enterprise platforms — are module assemblies running on multiple databases with integration layers between them. The practical implication is that PAYC can sell payroll accuracy as a feature rather than an aspiration.

Switching costs in payroll processing are real. Payroll data contains years of historical records tied to tax filings, benefits elections, and compliance documents. Moving between platforms requires data migration, retraining, and a compliance gap risk at the transition date. Those friction costs are why payroll software tends to have retention rates in the high 80s to mid-90s — PAYC's specific retention figure is not disclosed in the sources available for this article, but the Finviz summary notes the Beti product specifically targets retention improvement. 2

The 87.6% gross margin is the best structural evidence of moat quality. A software company with substantial switching costs and no meaningful incremental delivery cost per client — once the platform is built and the client is onboarded — converges toward very high gross margins over time. PAYC's 87.6% compares to PAYX at 73.9% and ADP at 48.5%. ADP's lower gross margin reflects its significant employer services segment (benefits administration, brokerage), which has higher variable costs than pure SaaS. PAYC's spread over ADP on this metric is 39 percentage points.

Risk 1 — Revenue growth may plateau below market expectations. PAYC's revenue grew 30% in FY2022, 23% in FY2023, 11% in FY2024, and 9% in FY2025. The TTM rate of 9.4% suggests a floor may be forming, but analyst consensus at 7.2% revenue growth for the next three years implies continued moderation. 1 The Beti product rollout created implementation friction with some clients in 2023, which management attributed to the Q3 2023 earnings miss that triggered the mass analyst downgrade. If Beti-related headwinds have fully worked through the client base, the 7-9% revenue cadence may be the new floor. If those headwinds persist or new product friction emerges, a sub-5% revenue print would put the forward earnings growth consensus at risk.

Risk 2 — Short interest at 9.98% of float. PAYC's short interest of 3.97 million shares represents 9.98% of float — meaningfully higher than ADP (3.84%) and PAYX (6.23%), and roughly comparable to PCTY (7.0%). 2 The short position can cut both ways: it can amplify a sell-off if shorts add on weak earnings, and it can produce a short squeeze if earnings beat. The elevated short interest reflects genuine market skepticism — primarily around the growth deceleration — rather than any identified balance sheet problem or fraud risk.

Risk 3 — Insider sales, no insider purchases. Recent insider transactions are all sales: COO Randall Peck sold 2,500 shares at $140.50 on May 18, 2026 ($351K), CFO Robert Foster sold 1,300 shares at $162.66 on December 10, 2025 ($211K), and CIO Bradley Scott Smith sold 1,500 shares at $223.27 on September 12, 2025 ($335K). 2 No insider purchases appear in the available transaction history. These amounts are modest relative to insider equity stakes and are consistent with 10b5-1 plan execution at various price levels, but the absence of any open-market buying at a 50% drawdown from the 52-week high is a notable absence. Founder Chad Richison holds ~14.5% of shares — his actions in the filing window (not visible in these sources) would be the most meaningful signal. 1

Risk 4 — November 2023 downgrade wave created lasting analyst skepticism. On November 1, 2023, nine firms downgraded PAYC in a single session following Q3 2023 earnings — BofA Securities cut from Buy to Neutral ($330→$185), Stifel from Buy to Hold ($400→$160), Piper Sandler from Overweight to Neutral ($399→$185), TD Cowen from Outperform to Market Perform ($331→$202), KeyBanc from Overweight to Sector Weight, and four others. 2 The rerating has partially unwound — TD Cowen upgraded back to Buy in September 2025, KeyBanc upgraded to Overweight in March 2026, BTIG resumed at Buy in December 2025, and Guggenheim initiated at Buy ($270) in September 2025 — but BMO Capital Markets (the most active analyst on the name) has maintained Market Perform throughout, most recently setting a $145 target (May 7, 2026). The wide target dispersion ($145 BMO to $270 Guggenheim) signals that analyst consensus has not yet converged on a growth trajectory.

Risk 5 — Short-term debt concentration. The $763.6M in debt taken on for the buyback program is primarily short-term. 10 Rolling short-term debt at higher rates or during a credit tightening period would increase interest expense — though from a very low base given the 89.74× interest coverage. If PAYC continues the buyback pace of H1 2026 into H2 and refinances maturing short-term debt at current rates, the interest coverage ratio will move toward something more like 50–60× (still robust, just less dramatically so). The current ratio of 1.08× provides minimal liquidity headroom; operating cash flow of $710M TTM comfortably funds operations, but an unexpected FCF shortfall would put the balance sheet under more pressure than it has historically faced.

Q1 2026 earnings (reported May 6, 2026, AMC): Revenue and EPS beat estimates. The stock rose 9.55% the following session — the clearest near-term evidence that the market views earnings beats as a re-rating trigger, not just a blip. 2

Next earnings: Aug 5, 2026 (AMC est.) Three variables are most consequential at that report: (1) whether revenue growth holds in the 9-10% range or decelerates toward the 7% consensus baseline; (2) CapEx trajectory — if the $270M FY2025 infrastructure spend was a peak, FCF will accelerate in H2 2026; (3) any update to the buyback program, including whether PAYC is issuing additional short-term debt or has reached a natural pause.

Analyst consensus: 20 analysts, Buy consensus (avg. rating 2.45/5.0). Average price target $151.44 (StockAnalysis) / $151.93 (Finviz), implying 21.3% upside from $124.85. 12 Notable outliers: Guggenheim $270 Buy (Sep 2025), TD Cowen $258 Buy (Sep 2025), BTIG $195 Buy (Dec 2025), BMO $145 Market Perform (May 2026). The $270 Guggenheim target requires a meaningful re-rating to roughly 25–26× forward earnings; the BMO $145 target implies no multiple expansion from current levels, only earnings growth.

52-week context: The stock is 50% below its 52-week high of $248.95 and 19% above its 52-week low of $104.90. The current price of $124.85 is below every analyst target in the Finviz database. Beta of 0.79 means PAYC moves less than the broader market on a daily basis, which is consistent with its relatively stable, recurring-revenue SaaS model. 1

This is not a buy or sell recommendation. Here is the structure of the case.

PAYC at $124.85 presents one straightforward thesis and one straightforward risk: the thesis is that a profitable, 87.6%-gross-margin SaaS company with accelerating FCF ($445.8M TTM, 7.66% yield) and a 21%+ analyst consensus upside is trading at the lowest multiple in its public history — 14.59× trailing and 11.04× forward — at a time when the growth deceleration appears to be stabilizing in the 9-10% range. The PEG of 0.88× is anomalous for quality software. The risk is that 9% revenue growth is not the floor, the Beti product creates new implementation friction with clients, and the leveraged buyback adds a layer of financial complexity that the company has never carried before.

The bull case has three conditions: (1) August 5 Q2 earnings show revenue growth at or above 9% — confirming the deceleration floor; (2) CapEx moderates from FY2025's $270.9M peak, expanding FCF toward $480-500M; (3) the multiple re-rates toward post-deceleration peers (ADP at 20×, PAYX at 21×), closing roughly half the current 6-7× gap. On those conditions and consensus EPS growth of 12.7%, a $165-185 price range over 12-18 months is consistent with the available analyst targets.

The bear case requires only that revenue growth decelerates further toward 5-6%, squeezing operating leverage assumptions. At 5% revenue growth, the consensus EPS growth of 12.7% becomes difficult to sustain without additional buyback leverage. The BMO $145 target is the conservative anchor; a revenue-miss scenario toward the $104-$115 range (Q1 2026 lows) is the downside reference. The 52-week low of $104.90 is 16% below the current price — that is a measured, not catastrophic, drawside.

The most direct signal to watch before August 5: any management commentary on Beti adoption rates or revenue guidance revision in the interim. The Nov 2023 downgrade wave was triggered by a Beti-related revenue-guidance cut — if that dynamic resurfaces, consensus estimates move down faster than the multiple can absorb.

The sector comparison this channel has built over June provides useful context: PAYC's FCF yield (7.66%) sits between ADP (covered June 12, ~5.9% at time) and PAYX (covered June 17, ~5.8% at time) — but PAYC has a steeper growth profile, lower dividend yield, and a balance sheet that has changed materially in the TTM period. It is not a direct replacement for either; it is a different risk profile at a different point in its capital allocation evolution.