Paycom Software's Sharp Valuation Correction: Why Aggressive Share Buybacks Matter for This Payroll Titan

The Turnaround Narrative

Paycom Software (NYSE: PAYC) has experienced a dramatic shift in market perception. From a high-flying software darling in 2021, the stock has plummeted approximately 72% from its peak, leaving many investors questioning whether this represents a genuine buying opportunity or a broken narrative.

The core issue isn’t the business quality—it’s expectations. Paycom operates in the payroll and human resources software space with an overwhelmingly recurring revenue model, the kind of predictable cash-generating machine that typically commands premium valuations. Yet the market has forcefully reset what it’s willing to pay for the company’s growth trajectory.

Understanding the Growth Deceleration in Context

Paycom’s recent performance reveals why the valuation compression occurred. In Q3 2025, the company generated revenue of $493.3 million, representing 9.1% year-over-year growth. Compare this to the 30.4% expansion achieved in Q3 2021, and the growth slowdown becomes unmistakable. The trajectory has shifted from hypergrowth to steady expansion—a transition that spooked investors accustomed to the company’s earlier acceleration.

Even more revealing, Q3 2025 showed sequential deceleration, with the 9.1% quarterly growth trailing the 10.5% posted in Q2. This pattern of slowing momentum has weighed on market sentiment throughout the year.

Yet context matters considerably. Double-digit growth in recurring revenue—which comprises approximately 95% of Paycom’s total revenue stream—remains genuinely solid, with “recurring and other” revenue climbing 10.6% year over year in Q3. Management’s guidance points to roughly 9% total revenue growth for 2025, confirming that the company continues expanding, albeit at a more measured pace than during its hypergrowth phase.

Where Profitability and Valuation Alignment Creates Opportunity

What’s particularly compelling is how profitability metrics have evolved. Paycom’s adjusted EBITDA margin expanded from 37.9% in the year-ago quarter to 39.4% in Q3 2025—an improvement that underscores the company’s operational leverage. Non-GAAP earnings per share rose 16.2% year over year to $1.94, outpacing the top-line growth rate and signaling that operating efficiency gains are offsetting revenue deceleration concerns.

This profitability strength matters enormously when paired with the stock’s newfound valuation accessibility. At roughly 15 times forward earnings, Paycom now trades at a discount to historical norms, fundamentally altering the calculus around share repurchases.

The Strategic Advantage of Aggressive Buyback Execution

Here lies the pivot point in Paycom’s investment thesis. With shares trading at depressed levels, the company has moved aggressively on share repurchases—a capital allocation shift that transforms the shareholder return profile.

In Q3 2025 alone, Paycom repurchased $223.4 million in stock. To illustrate the mathematical power of this move: if the company maintained this quarterly buyback pace for three additional quarters, the share count would shrink approximately 10%. This represents a genuine boost to per-share metrics independent of organic business growth.

The buyback strategy becomes increasingly attractive precisely because valuation has compressed. Every dollar deployed at 15 times forward earnings reduces the denominator (share count) while the numerator (earnings) continues its double-digit climb. This is the textbook setup for repurchases to drive shareholder value when a quality business faces temporary valuation headwinds.

Assessing the Risk-Reward Framework

The investment case hinges on several supporting factors. Paycom carries zero debt on its balance sheet, providing financial flexibility. The recurring revenue model—95% of the total—ensures predictable cash flows. Double-digit recurring revenue growth persists despite headline growth deceleration. The competitive landscape in online payroll and human capital management remains intense, yet the company continues capturing market share.

Risks unquestionably exist. Further growth deceleration could trigger fresh valuation concerns or raise competitive positioning questions. The market has already priced in substantial caution, but unexpected deterioration could push sentiment even more negative.

However, the current valuation strikes a reasonable risk-reward balance. At 15 times forward earnings with expanding EBITDA margins, growing recurring revenue, and aggressive share repurchases at depressed prices, Paycom presents the characteristics of a quality business trading through a temporary valuation correction rather than a structurally impaired enterprise.

The Bottom Line

For investors seeking exposure to predictable software revenue streams with visible profitability, Paycom Software represents an intriguing entry point. The aggressive buyback campaign at current valuations meaningfully improves the long-term return potential, as management effectively locks in shares at prices likely to look cheap within a 3-5 year horizon. Whether this becomes a core holding or a tactical position depends on your risk tolerance and time horizon, but the current setup appears more favorable than the market’s pessimism suggests.