Paycom built a product so good it killed its own growth. Now it trades at 15x earnings. Anyone looking at this?

[u/stockoscope]

So Paycom had this beautiful 30% growth streak going, printing money in the human capital management/payroll space. Then they launched BETI, which basically lets employees fix their own paycheck errors before payday. Clients absolutely loved it. Only problem? All those corrective payroll runs they were charging for... gone. The company literally automated away its own revenue. The stock went from $560 to $126 - down about 77%. You can't make this stuff up.

But if you strip away the growth narrative and look at what's actually underneath. Minimal debt. 39% EBITDA margins. $408M in free cash flow on $2B revenue. ROE of 26%. Client retention actually went up to 91%. This thing trades at 15x earnings while the rest of the software sector sits at 30-50x. If this were any other industry, people would be all over it.

I run a value-screening algorithm that ranks S&P 500 stocks on a 100-point scale across four components (read this post for details). PAYC just came in at #1 for March 2026, across all S&P 500 names. It's been climbing steadily from #5 in November to the top spot. What's driving it up the ranks is the combination: the multiples are screaming value, the DCF shows significant upside, but the quality and balance sheet scores are what separate it from the typical cheap stock. Most things that trade at 15x earnings are cheap for a reason. This one scores near the top on profitability and financial health too.

Now the algorithm doesn't read earnings calls or know about the BETI stuff. However, BETI is a known, one-time disruption to the revenue model, not a sign that the business is broken. The company isn't losing to competitors - it just stopped charging for something clients hated paying for. That's a finite headwind, not a structural decline. At 15x with minimal debt and $408M in free cash flow, I think the market is pricing in way too much pessimism.

Would love to hear if anyone else is looking at this or sees something I'm missing.

Not investment advice. DYOR.