Paycom Software (PAYC) Stock Forecast & Price Target

Paycom Software has demonstrated significant growth, with its client base increasing from approximately 12,800 in 2014 to over 37,500 in 2024, reflecting a robust 16% compound annual growth rate (CAGR) over the decade. The company’s revenue model, heavily reliant on subscription sales for its human capital management platform, has further benefited from rising interest rates, which positively influenced its financial performance in recent years. Additionally, higher capital expenditures as a percentage of revenue, rising from 7% to 13%, underscore Paycom's commitment to enhancing its service offerings and supporting customer demand through strategic investments in technology.

Paycom Software is projected to experience a slowdown in New Annual Recurring Revenue (ARR), with estimates indicating a decline of 15%, despite an anticipated increase in recurring and other revenue by 11% year-over-year, reaching approximately $516 million in Q4 2025. Additionally, the company's gross margin is expected to be adversely affected by depreciation related to a $130 million investment in GPUs, potentially resulting in margins that are lower than current consensus estimates. Furthermore, customer retention has been on a downward trend, decreasing from 94% in 2021 to 90% in 2023, largely due to competitive pressures and challenges associated with the launch of its Beti service, which is crucial for Paycom's growth strategy.