Paycom Software, Inc. (PAYC): A Bull Case Theory

We came across a bullish thesis on Paycom Software, Inc. on The Wealth Dynasty Report’s Substack. In this article, we will summarize the bulls’ thesis on PAYC. Paycom Software, Inc.'s share was trading at $134.75 as of January 30th. PAYC’s trailing and forward P/E were 16.69  and 13.16 respectively according to Yahoo Finance.

Paycom Software, Inc. provides a cloud-based human capital management (HCM) solution delivered as software-as-a-service for small to mid-sized companies in the United States. PAYC represents a counterintuitive but compelling investment case rooted in margin expansion rather than headline revenue growth. While often analyzed through a conventional SaaS framework focused on recurring revenue and TAM expansion, Paycom has engineered a structurally different model in which customer maturity drives profitability higher over time.

At the core of this dynamic is Beti, Paycom’s employee self-service payroll system, which shifts routine payroll corrections and HR tasks from Paycom and corporate HR teams directly to employees. As customers adopt and internalize these workflows, Paycom’s support and servicing costs decline materially while pricing remains stable or increases, creating a rare form of reverse operating leverage. Over time, this results in gross margin expansion from roughly 70–75% at initial adoption to 80–85% for mature customers, alongside materially lower churn.

Crucially, Beti also increases switching costs in a non-obvious way. As organizations redeploy or reduce HR headcount and employees become accustomed to Paycom’s workflows, switching vendors requires not only data migration but broad organizational retraining and productivity disruption, often dwarfing implementation costs.

This dynamic allows Paycom to capture an increasing share of industry profit even as automation compresses the overall cost pool for payroll and HR services, forming a “deflationary profit pool” that benefits Paycom disproportionately. Compared with legacy providers, where retained HR complexity preserves optionality to switch, Paycom’s workforce de-intermediation becomes a powerful lock-in mechanism.

While Paycom’s model is less effective in highly unionized or bureaucratic enterprises, its focus on the mid-market remains a sweet spot where customer sophistication compounds Paycom’s margins and retention. This structural advantage makes Paycom a long-term compounding business that traditional growth-centric valuation frameworks tend to underappreciate.

Previously, we covered a bullish thesis on Paycom Software, Inc. (PAYC) by Sabar Capital in May 2025, which highlighted the integrated HCM platform, consistent revenue growth, and BETI-driven payroll automation supporting high retention. PAYC’s stock price has depreciated by approximately 40.73% since our coverage due to valuation compression and payroll revenue pressure. The Wealth Dynasty Report shares a similar view but emphasizes margin expansion and reverse operating leverage.

Paycom Software, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 35 hedge fund portfolios held PAYC at the end of the third quarter which was 34 in the previous quarter. While we acknowledge the potential of PAYC as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.