Paycom Continues Impressive Growth Trajectory During Q1 2022; $388 FVE Maintained

Paycom enjoyed robust first-quarter fiscal-year 2022 results, underpinned by healthy client growth driving a 30% increase in year-on-year recurring revenue and a modest uptick in seasonal form filing revenue. It appears that Paycom’s investment in extensive and ongoing broad-based marketing campaigns is bearing fruit and supporting impressive growth. We believe greater uptake of features including self-service payroll, a continued shift upmarket, and normalizing seasonal revenue supported higher revenue per client, steady to improved revenue retention, and operating margin improvement of 100 basis points year on year to about 36%. While the result was broadly in line with our expectations, we increase both our revenue and adjusted EBITDA forecasts by about 1% each for fiscal 2022, marginally above updated guidance. However, this is immaterial to our valuation. Despite rallying after the result, Paycom shares currently trade at an attractive 22% discount to our unchanged $388 fair value estimate.