Paycom Clocks Impressive Growth in 2022 as the Firm Skews Upmarket; Shares Attractive

Narrow-moat Paycom rounded out 2022 with consistent sales momentum as the firm’s laser focus on automation continues to attract clients and drive higher module attachment. Following a consistent shift upmarket, we raise both our 2023 and longer-term revenue growth forecasts to reflect higher than previously expected revenue per client growth. For 2023, we now expect growth at the low end of guidance at about 23%, versus 20% previously, primarily driven by new clients wins. However, we expect increased exposure to larger clients who typically wield significant bargaining power to limit margin upside. As a result, we trim our profitability outlook, and now expect operating margins of 29.6% in 2027, down from our prior estimate of 34.1%. Our trimmed profitability outlook is offset by time value of money, resulting in an unchanged fair value estimate of $388 per share. At current prices, shares trade at an attractive 17% discount to our valuation.