Paycom (PAYC)

Is -35% in the past year. Faces too many competitors who are being gutted, too. Is leaving the S&P.

It's in a good sector--human capital software. Also likes Paycor.

New position that recently bought. Stock price off all time highs, which has presented a buying opportunity. Typically able to grow earnings ~20%. Very sticky revenue model that is recurring monthly. Churn of customer base also very low. Looking to buy more shares. 

Paycom sank 23% in May. It's a human capital management software play, which is in a bear market and a crowded space.

EPS of $1.77 beat estimates of $1.61 and revenues of $406M missed estimates of $411.15M. PAYC shares fell significantly following its earnings release, after weaker-than-expected Q3 revenue and a soft Q4 guidance. Analysts noted 'Beti cannibalization' as their reasons for downgrading the stock. Beti is the company's software that allows employees to do their own payroll and are guided to find and fix errors before payroll submission. Beti is leading customers to spend less on services and unscheduled payroll runs, negatively impacting monetization opportunities for PAYC.  

It is a well-run company and has good fundamentals. Software is sticky, and if customers are finding its Beti product useful, then it may allow for growth in new clients, while being partially offset by the cannibalization factors. It trades at a historically cheap valuation (20.3X forward earnings), but much revolves around expectations for the future. We think long-term it can perform well, but unless management can talk to the eroding services revenue resulting from Beti, this may trade sideways for a few quarters or more. We think it can come back from this large decline.
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Fintechs are out of fashion, especially those involved in employment. These stocks aren't working now.

The chart looks great and they have been a consistent earnings beater. He likes the fin-tech space, but this is a smaller player. They also do data analytics. Over 90% of the date on servers globally has been put there in the last 18-24 months. It is not cheap with a 30-40 PE.