Paycom Software (PAYC 1.24%) saw its share price tumble about 40% in the wake of its third-quarter earnings report. The driving force behind that drawdown was nothing out of the ordinary. The company provided weaker-than-expected guidance entailing a significant slowdown in sales growth in the coming quarters.

However, the reason for the soft guidance was rather unusual. The innovative payroll software Paycom launched two years ago is now creating so much value for clients that it is cannibalizing sales related to adjacent payroll correction services. Morningstar analyst Emma Williams explained the odd situation like this: "Paycom's laser focus on driving automation and self-service payroll appears to have become a double-edged sword for the firm."

Even so, Paycom remains a strong business with robust growth prospects, and -- with the stock now trading at its cheapest valuation in almost 10 years -- patient investors should view the drawdown as a once-in-a-decade buying opportunity.

Wall Street was disappointed by Paycom's guidance

On the whole, Paycom reported solid financial results in the third quarter, something that shareholders have to come to expect from the human capital management (HCM) software vendor. Revenue climbed 22% to $406 million and GAAP net income soared 44% to $75 million. The only problem was disappointing guidance.

Paycom expects revenue growth of 14% in the fourth quarter and 11% next year, but the Wall Street consensus called for 21% growth in both cases. The mismatch is primarily due to sales cannibalization by the payroll product known as Beti (Better Employee Transaction Interface).

Self-service functionality is nothing new in HCM software, but Paycom was the first company to bring self-service technology to payroll software. Beti essentially automates payroll by requiring employees to review, troubleshoot, and approve their paychecks prior to finalization, thereby reducing the need for time-consuming and costly after-the-fact corrections.

That selling point is undoubtedly compelling for clients, but it's actually become a headwind for Paycom. The company earns revenue in two ways: (1) fixed amounts charged per billing period and (2) variable amounts based on the number of employees or transactions. By helping clients get payroll right the first time, Beti is eating away at the second type of revenue.

Paycom CFO Craig Boelte offered this explanation: "Beti adoption and usage creates tremendous value to clients as they experience perfect payrolls and eliminate errors, corrections, and unscheduled payrolls, which would otherwise be billable items."

Paycom remains a strong business with robust growth prospects

Paycom has grown revenue nearly three times faster than the broader HCM and payroll software industry over the last five years, gaining market share at an impressive pace. But it still accounts for less than 5% of global HCM spend, leaving plenty of upside. Investors have two good reasons to believe the company will continue to grow quickly in the years ahead.

First, Paycom integrates payroll software with a broad range of HCM applications -- tools for recruitment, training, scheduling, compliance, and benefits administration -- enabling businesses to manage the full employee lifecycle from a single platform. That full-stack strategy is an important differentiator. Most companies currently rely on multiple software vendors to meet their HCM and payroll needs, but Paycom eliminates that complexity and makes it possible to consolidate through a single vendor.

Second, Paycom has operated exclusively within the U.S. until recently. Its Global HCM product launched in April, extending its HCM software to more than 180 countries, and the company is now bringing payroll software to international markets as well. To date, Beti has launched in Canada and Mexico. Paycom holds about 5% market share in the U.S., but far less internationally. Global HCM puts the company in front of a much bigger (and previously untapped) addressable market.

Why Paycom stock is a once-in-a-decade buying opportunity

Paycom may not be the most exciting company, but HCM and payroll software are critical to businesses of all sizes. Paycom has demonstrated its ability to take market share and investors have good reason to believe that will continue. While Beti cannibalizing sales is far from ideal, the fact that Paycom created such a valuable product is encouraging, and its capacity for innovation is an asset that should keep the company in growth mode for years to come.

With that in mind, Morningstar analyst Emma Williams expects Paycom to grow revenue at 15% annually over the next five years. That makes its current valuation of 5.3 times sales -- essentially the cheapest sales multiple in the past decade -- look downright cheap. Patient investors should feel comfortable buying a small position in this growth stock today.