Paycom Software (PAYC 4.36%) used to trade like the kind of software stock you could buy, forget about, and check again in five years.
But that stability was upended in recent years. The stock is down about 72% from its all-time high, set in November 2021. The brutal drawdown has likely rattled shareholders and caused some to move on.
But this begs the question: Is this just a broken story, or a high-quality business going through a valuation reset? Even more, is this a buying opportunity?
Image source: Getty Images.
A valuation reset
Paycom sells payroll and human resources (HR) software -- and its revenue base is overwhelmingly recurring. In other words, it is not the kind of business you typically expect to have its stock get cut in half, then cut in half again.
But the stock's pricey valuation in 2021 meant the bar had become extremely high.
When a software company is priced for years of smooth and robust growth, any hint of slowing can cause investors to go back to the drawing board and reassess whether shares truly deserve to trade at such a high valuation.
Paycom's decelerating growth has ultimately led to a valuation reset for the stock.
Sure, the business is growing nicely -- just not near the levels it was growing at in 2021. In the third quarter of 2025, revenue rose 9.1% year over year to $493.3 million. This is a far cry from the 30.4% growth the company posted in the third quarter of 2021.
It's no wonder that the stock has fallen since 2021. That's a dramatic deceleration.
Adding to the pressure on the stock recently, even Paycom's third-quarter 2025 results represented a sequential deceleration, as its 9.1% top-line growth was a slowdown from 10.5% growth in Q2.
Profitability remains impressive
Still, there's a lot to like.
First of all, Paycom's 9.1% third-quarter top-line growth is still good growth. And the company's recurring revenue growth rate is still in the double digits. Paycom's "recurring and other" revenue in Q3 rose 10.6% year over year. Representing about 95% of total revenue, it's encouraging to see this important revenue stream still growing at a double-digit rate.
Further, the company is doing very well when it comes to profitability trends. Starting with its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin, it rose from 37.9% in the year-ago quarter to 39.4% in the third quarter of 2025. Further, Paycom's non-generally accepted accounting principles (GAAP) earnings per share in Q3 rose an impressive 16.2% year over year to $1.94.
NYSE: PAYC
Key Data Points
The icing on the cake is that the company's impressive profitability pairs nicely with its more conservative valuation as of late, since Paycom now gets more bang for its buck when it repurchases its shares. In the third quarter of 2025 alone, the company repurchased $223.4 million of stock.
Highlighting how powerful these share repurchases are, if Paycom continued repurchasing this much stock every quarter for the next three quarters, the company would reduce its share count by about 10%. Of course, this assumes the company could keep buying back its stock at the current price.
Overall, I think this is a great buy-the-dip opportunity. With shares trading at just 15 times forward earnings, recurring revenue growing at a double-digit rate, its adjusted EBITDA margin expanding, and zero debt on the balance sheet, I think Paycom stock is a no-brainer today.
Sure, there are risks. If growth slows even more, for instance, investors could call into question the company's growth strategy, and the valuation could suffer even more. Additionally, the online payroll and human capital management space is intensely competitive; decelerating growth could suggest that Paycom is losing its competitive edge. Overall, however, I think the stock's conservative valuation already prices in these risks.
