PAYC · Paycom Software
Conviction · Medium · more likely to lead the S&P 500 over the next three months, by a modest margin
Wrong if: a daily close below $225
Note written ·
How this view changed
- · Rating raised from Low to Medium. Results, 4 November 2026: Paycom reported Q3 2026 adjusted EBITDA of $268.1 million (49.3% margin) and raised full-year adjusted EBITDA guidance to $1.069–1.079 billion from $1.007–1.022 billion, while the shares closed at $237.96, below the October level that had exceeded targets.
Price against the kill line
10.6% clear of its kill line on the 13 November 2026 close.
How to read this
The red mark is the price level of the published kill line: a close through it (a weekly close, on a weekly line) would prove the research note wrong on price. The dot is where the stock closed on 13 November 2026; a dot left of the mark has closed through its line.
The scale is stretched near the line, so close calls are easy to see. More than 8% from the line, the stock reads well clear, with a hollow dot to show the figure is off the drawn scale.
The kill line is the research note's own test. The portfolio sells on business facts, not on a price. How the portfolio decides
Three months against the kill line
Daily closes, to . Red: the kill line, a daily close below $225.00, on record since 11 November 2026. The shares are up 16.4% since the close; the S&P 500 is down 2.1% over the same sessions. Figures in the note can cover a different window.
Kill line
A daily close below $225, well under the 10 November 2026 close of $237.96. A cut to the roughly $107.0 million 2026 client-funds interest guide, or fourth-quarter recurring revenue growth in the low single digits, would also break the case.
Research onlyNot in the portfolio.
Key figures from the filings · Technology
Quarter to 30 September 2026, filed 5 November 2026; valuation at the 13 November 2026 close
- Revenue, latest quarter ($M)
- 544
- Revenue, change on a year (%)
- +10.2
- Gross margin (%)
- 84.0
- Operating margin (%)
- 36.0
- Free cash flow, four quarters ($M)
- 659
- Net cash, cash less debt ($M)
- −556
- Price to earnings (×)
- 22.0
- Enterprise value to sales (×)
- 5.4
All filed numbers
What Paycom Software reports to the SEC in its quarterly and annual filings. Each group states its period and filing date once; a figure dated otherwise says so. Built from the filings known on .
| Quarter to | Revenue ($M) | On a year (%) | Gross margin (%) | Operating margin (%) |
|---|---|---|---|---|
| first filed | 544 | +10.2 | 84.0 | 36.0 |
| first filed | 531 | +9.8 | 83.2 | 31.7 |
| first filed | 572 | +7.8 | 84.7 | 36.8 |
| first filed | 544 | +10.2 | 83.9 | 28.9 |
| first filed | 493 | +9.2 | 82.7 | 22.8 |
| first filed | 484 | +10.5 | 81.9 | 23.2 |
| Pre-tax income ($M) | 185 |
| Net income ($M) four quarters: 510 | 133 |
| Diluted shares, change on a year (%) against the quarter to 30 September 2025 | −21.1 |
| Operating cash flow ($M) | 810 |
| Capital spending ($M) | 151 |
| Free cash flow ($M) | 659 |
| Cash and short-term investments ($M) | 194 |
| Debt ($M) non-current long-term debt | 750 |
| Net cash, cash less debt ($M) | −556 |
| Deferred revenue ($M) +1.9% on a year | 154 |
| Backlog, orders not yet delivered ($M) | Not reported |
| Receivables ($M) | 56.2 |
| Inventory ($M) | 2.1 |
| Shareholders' equity ($M) | 707 |
| Market value ($M) | 11,207 |
| Enterprise value, market value plus net debt ($M) | 11,764 |
| Enterprise value to sales (×) | 5.4 |
| Enterprise value to operating income (×) | 16.1 |
| Price to earnings (×) | 22.0 |
| Price to book value (×) | 15.8 |
| Free-cash-flow yield (%) | 5.9 |
Short interest (FINRA, settled 15 October 2026, published 26 October 2026): 5.5% of shares outstanding sold short, 4.5 days of average trading to cover, −4.3% since the previous report.
| Window | Bought | Sold |
|---|---|---|
| 90 daysfrom | $0 | $670K |
| 12 monthsfrom | $0 | $1.6M |
The thesis
Paycom Software beat third-quarter estimates and raised its 2026 adjusted EBITDA guidance, yet the shares closed at $237.96 on 10 November 2026, down from $262.79 on 28 October 2026. The market is pricing a slower fourth quarter, and the next report, expected in early 2027, settles whether recurring revenue growth holds near 11% or fades toward the 9% full-year guide.
The 4 November 2026 report produced the strongest margin result in the series. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $268.1 million, or 49.3% of revenue, against 39.4% a year earlier. Paycom raised its full-year adjusted EBITDA guide to $1.069–1.079 billion from $1.007–1.022 billion. The 16 October 2026 note asked whether guidance would rise enough to support a price above the consensus target. It rose, but the price fell.
The story is well known: the October wave of target increases ended with BTIG's 5 November 2026 downgrade to Neutral and Citi's 6 November 2026 target cut to $264. Paycom Q3 2026 release, SEC Form 8-K
Bullish and bearish views on Paycom Software, Inc.
The bull case on Paycom Software, Inc. (PAYC), in brief: margins are expanding fast. The bear case: guidance implies a sharp fourth-quarter slowdown.
Bull case
- Margins are expanding fast. Q3 adjusted EBITDA margin was 49.3% against 39.4% a year earlier, and Q2's was 44.2%. Sales and marketing expense fell to $108.0 million from $125.7 million and research and development to $38.5 million from $74.1 million, per the 8-K.
- Revenue beat and guidance rose. Total revenue was $543.8 million, up 10.2%, against the $535.285 million analyst estimate cited by Benzinga on 4 November 2026. Recurring and other revenue grew 11.3% to $519.3 million. Full-year revenue guidance moved to $2.213–2.218 billion from $2.197–2.212 billion.
- Earnings per share jumped. GAAP diluted earnings per share were $2.99 against $1.96 a year earlier. Non-GAAP earnings per share were $3.37 against a $2.81 estimate cited by Benzinga.
- Targets sit above the price. Cantor Fitzgerald raised its target to $285 on 30 October 2026. Deutsche Bank moved its target to $275 from $205 and KeyBanc raised its to $297 on 5 November 2026. All three exceed the 10 November 2026 close of $237.96.
- Interest income guide edged up. Paycom now guides interest on funds held for clients to about $107.0 million for 2026, against about $105 million in August.
Bear case
- Guidance implies a sharp fourth-quarter slowdown. Paycom kept full-year recurring and other revenue growth at about 9%, after 11.3% in Q3. A finsee.ai analysis calculates the guide implies fourth-quarter recurring growth of about 4.4%. Management said quarterly results can fluctuate and that it faces a difficult comparison with the prior-year period.
- Analysts are cooling. BTIG downgraded the shares to Neutral on 5 November 2026, and Citi, rated Neutral, lowered its target to $264 from $279 on 6 November 2026, per Benzinga. Bank of America has rated the shares Underperform with a $200 target since 29 September 2026, citing a mature payroll base and limited upselling.
- Buybacks are now partly debt-funded. Long-term debt was $750.0 million on 30 September 2026, against none at the end of 2025. Cash fell to $193.9 million from $370.0 million, and repurchases totaled $1,390.9 million over nine months.
- Share count flatters per-share growth. Shares outstanding fell to 44.3 million on 30 September 2026 from 54.8 million at the end of 2025. Part of the earnings-per-share gain comes from fewer shares.
- Cost cuts drove the margin gain. The drop in research and development and sales spending lifted margins. Growth in revenue is still around 10%.
Price setup
The shares closed at $237.96 on 10 November 2026, 13.3% below the 52-week high of $274.59, which was set in late October. The 14-day relative strength index was 34.8, close to the 30 level traders read as oversold. The three-month price change was 6.6%.
The close sits under $240.52, the pre-October 52-week high. The October rally has now been given back. The shares are 9.4% below the 28 October 2026 close of $262.79.
Crowding evidence has eased. Five firms raised targets between 23 October 2026 and 28 October 2026, a pre-earnings run that has since reversed in part. Paycom's share count fell by 10.5 million shares in nine months through buybacks, a source of buying that depends on its credit facility.
Catalysts ahead
- ~February 2027 (est.): Paycom fourth-quarter and full-year 2026 results, date not yet confirmed. It shows whether fourth-quarter recurring revenue growth drops toward the roughly 4.4% one analysis calculates from guidance, or holds near the 11.3% reported for Q3.
What would change the view
A daily close below $225, well under the 10 November 2026 close of $237.96. A cut to the roughly $107.0 million 2026 client-funds interest guide, or fourth-quarter recurring revenue growth in the low single digits, would also break the case.
The risks this note tracks, each with what would confirm it:
- Recurring revenue growth slows sharply in the fourth quarter as full-year guidance of about 9% implies. Confirmed by: fourth-quarter recurring and other revenue growth well below the 11.3% reported for Q3.
- Margin gains from lower sales and research spending prove hard to repeat. Confirmed by: adjusted EBITDA falling short of the $1.069–1.079 billion full-year guide, or margin dropping from 49.3%.
- Debt-funded buybacks strain the balance sheet if cash generation slows. Confirmed by: long-term debt above $750.0 million or cash below the $193.9 million reported on 30 September 2026.
- Lower short-term interest rates reduce income on client funds. Confirmed by: Paycom cutting its roughly $107.0 million 2026 guide for interest on funds held for clients.
- Analyst sentiment keeps cooling after the post-report downgrade. Confirmed by: further target cuts toward Bank of America's $200 Underperform target.
What it trades with
Paycom trades with US payroll and human-capital software peers, and it reacts to interest-rate moves because part of its revenue is interest on client funds. Its shares fell after a beat and a raise, which points to growth expectations rather than margin as the driver. Moves in broader software multiples can shift the price without any Paycom news.
The evidence, claim by claim (8)
- Q3 2026 total revenue $543.8M, up 10.2%; recurring and other revenue $519.3M, up 11.3%; adjusted EBITDA $268.1M, a 49.3% margin versus 39.4% a year earlier. Paycom Q3 2026 results release, SEC Form 8-K · as of
- Full-year 2026 guidance: revenue $2.213–2.218B, adjusted EBITDA $1.069–1.079B, recurring and other revenue growth about 9%, interest on client funds about $107.0M. Paycom Q3 2026 results release, SEC Form 8-K · as of
- Long-term debt was $750.0M on 30 September 2026 versus none at year-end 2025; nine-month repurchases were $1,390.9M; shares outstanding fell to 44.3M from 54.8M. Paycom Q3 2026 results release, SEC Form 8-K · as of
- Non-GAAP earnings per share of $3.37 beat the $2.81 estimate; sales of $543.8M beat the $535.285M estimate. Benzinga, 4 November 2026 · as of
- BTIG downgraded Paycom to Neutral; Deutsche Bank adjusted its target to $275 from $205; KeyBanc raised its target to $297. Benzinga, 5 November 2026 · as of
- Citigroup kept Neutral and lowered its Paycom price target to $264. Benzinga, 6 November 2026 · as of
- Cantor Fitzgerald kept Neutral and raised its Paycom price target to $285. Benzinga, 30 October 2026 · as of
- A finsee.ai analysis calculates the full-year guide implies Q4 recurring revenue growth of about 4.4% versus 11.3% in Q3. finsee.ai Q3 2026 earnings review · as of
Sources
- Paycom Software, Inc. - Form 8-K - FY2026 · sec.gov
- Paycom (PAYC) Q3 2026 earnings review · finsee.ai
- PAYC Q3 2026 Earnings Script 11 4 26 · s201.q4cdn.com
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