Darspal S Mann
Long/short equity, growth at reasonable price, special situations, deep value

Paycom: High Expectations Seem Misplaced

Paycom Software Inc. (NYSE:PAYC) stock is trading close to 40 times this year's expected EBITDA, which is expensive even by the standards of fast growing and high cash generating SaaS (Software as a Service) based employee or Human Capital management (NASDAQ:HCM) sector, the sector in which the company competes. This high an expectation, usually reserved for a startup, for the company that went public a few months ago, but started more than 15 years ago, is built upon expectations of continuously high organic growth, market share gains, high operating leverage and a possibility of getting acquired.

But, there are strong challenges to this thesis. Scalability and margin leverage may be difficult from current levels considering small...

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