Paycom (PAYC)

HR software provider Paycom (NYSE:PAYC) met Wall Street’s revenue expectations in Q4 CY2025, with sales up 10.2% year on year to $544.3 million. On the other hand, the company’s full-year revenue guidance of $2.19 billion at the midpoint came in 1.9% below analysts’ estimates. Its non-GAAP profit of $2.45 per share was in line with analysts’ consensus estimates.

Company Overview

Pioneering the concept of employees doing their own payroll with its "Beti" technology, Paycom (NYSE:PAYC) provides cloud-based human capital management software that helps businesses manage the entire employment lifecycle from recruitment to retirement.

Modern HR software has two powerful benefits: cost savings and ease of use. For cost savings, businesses large and small much prefer the flexibility of cloud-based, web-browser-delivered software paid for on a subscription basis rather than the hassle and complexity of purchasing and managing on-premise enterprise software. On the usability side, the consumerization of business software creates seamless experiences whereby multiple standalone processes like payroll processing and compliance are aggregated into a single, easy-to-use platform.

Paycom competes with established payroll and HR solution providers like ADP, Paychex, UKG (Ultimate Kronos Group), Workday, and Ceridian Dayforce, as well as newer entrants like Paylocity, Paycor, and Rippling.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Paycom’s 19.5% annualized revenue growth over the last five years was decent. Its growth was slightly above the average software company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Paycom’s recent performance shows its demand has slowed as its annualized revenue growth of 10.1% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs.

This quarter, Paycom’s year-on-year revenue growth was 10.2%, and its $544.3 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 8.7% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and implies its products and services will see some demand headwinds.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Paycom is extremely efficient at acquiring new customers, and its CAC payback period checked in at 13 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.

For software companies like Paycom, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Paycom’s gross margin is one of the highest in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 86% gross margin over the last year. Said differently, roughly $86.03 was left to spend on selling, marketing, and R&D for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Paycom has seen gross margins decline by 0.8 percentage points over the last 2 year, which is slightly worse than average for software.

In Q4, Paycom produced a 83.9% gross profit margin , marking a 2.9 percentage point decrease from 86.7% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Paycom has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 27.6%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Paycom’s operating margin decreased by 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.

This quarter, Paycom generated an operating margin profit margin of 28.9%, down 1.2 percentage points year on year. Since Paycom’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Paycom has shown impressive cash profitability, driven by its attractive business model and cost-effective customer acquisition strategy that give it the option to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 19.7% over the last year, better than the broader software sector.

Paycom’s free cash flow clocked in at $118.1 million in Q4, equivalent to a 21.7% margin. This cash profitability was in line with the comparable period last year and above its one-year average.

Over the next year, analysts predict Paycom’s cash conversion will slightly improve. Their consensus estimates imply its free cash flow margin of 19.7% for the last 12 months will increase to 21.5%, giving it more flexibility for investments, share buybacks, and dividends.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Paycom is a profitable, well-capitalized company with $370 million of cash and $90.3 million of debt on its balance sheet. This $279.7 million net cash position is 4.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Paycom beat analysts’ EBITDA expectations this quarter. On the other hand, its full-year revenue guidance missed and its revenue guidance for next year suggests a slowdown in demand. Overall, this was a softer quarter. The stock traded down 7.9% to $109.26 immediately following the results.

Updated: February 11, 2026 at 9:23 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Paycom isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its declining operating margin shows it’s becoming less efficient at building and selling its software.

Paycom’s price-to-sales ratio based on the next 12 months is 3.1x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $197.18 on the company (compared to the current share price of $109.46).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.