Why Paycom (PAYC) Shares Are Getting Obliterated Today

Max Juang /
2024/01/03 1:41 pm EST

What Happened:

Shares of online payroll and human resource software provider Paycom (NYSE:PAYC) fell 5% in the morning session after stocks experienced a second consecutive day of decline, accompanied by an increase in yields. The 10-year Treasury yield rose past the 4% mark for a brief moment. The 2-year yield rose to 4.38%. This may be a sign that there is a hint of uncertainty and questions about whether the broader market is positioned too optimistically or whether the market has "gotten ahead of itself". Other than this, there is nothing specific to directly explain the downward move. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory are not macro prognosticators. Instead, we think there are opportunities to pick market-beating stocks in any macro backdrop. We remain steadfast in our view that it's best to own high-quality companies with margins of safety over the long term in any market.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Paycom? Access our full analysis report here, it's free.

What is the market telling us:

Paycom's shares are not very volatile than the market average and over the last year have had only 6 moves greater than 5%. 

The biggest move we wrote about over the last year was 2 months ago, when the stock dropped 24% on the news that the company reported third quarter revenue that fell short of Wall Street's expectations. In addition, its full-year revenue and adjusted EBITDA guidance, which are more important because markets are forward-looking, were below estimates. The company attributed the weaker growth trend to cannibalization from Beti, its automated payment processing system. While it enhances efficiency, Beti has also led to lower billable services and reduced monetization opportunities. On a positive note, its EPS and adjusted EBITDA beat analysts' expectations during the quarter. 

Overall, it was a weaker quarter for the company. Following the results, multiple Wall Street analysts downgraded the stock, signaling that they think the worst may not be behind Paycom yet. For example, Deutsche Bank analyst Bhavin Shah downgraded Paycom from Buy to Hold, adding, "Beti is leading customers to spend less on services and unscheduled payroll runs, which is negatively impacting monetization opportunities for Paycom."

At $196.38 per share Paycom is trading 47% below its 52-week high of $370.78 from July 2023. Investors who bought $1,000 worth of Paycom's shares 5 years ago would now be looking at an investment worth $1,685.

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