Needham has reaffirmed its Hold rating on Paycom Software (NYSE:PAYC) in response to the company’s fourth-quarter results and the preliminary revenue outlook it released for 2026. The stock is trading around $118.71, close to its 52-week low of $116.83.
Paycom, a human-resources software provider, posted fourth-quarter results that Needham characterized as solid. The company reported earnings per share of $2.45 for the quarter, matching analysts’ expectations, while revenue came in at $544.3 million, slightly ahead of forecasts.
Despite the quarterly beat, Paycom’s initial guidance for full-year 2026 disappointed the market. Management set total revenue at $2.185 billion, which implies year-over-year growth of 6.5% at the mid-point. Needham highlighted that this midpoint is roughly 220 basis points below consensus estimates and falls short of the $2.225 billion figure analysts had expected, which corresponded to about 8.5% growth.
The guidance follows a 9.7% increase in revenue over the last twelve months. Needham noted some encouraging operating metrics: customer retention improved to 91% year-over-year from 90% in 2024, and cross-sell activity remained relatively stable through 2025. At the same time, the research firm observed that new sales activity appeared to be modestly lagging.
On profitability and capital allocation, Paycom continues to display strong margin performance, maintaining gross profit margins of 86.8%. Management has also been actively repurchasing shares. Needham suggested the company could consider further buybacks given its valuation and healthy cash-generation profile.
The firm retained its Hold stance but noted that Paycom’s valuation may look more attractive following the results and updated estimates. Needham pointed to a free cash flow yield approaching 10% on its revised numbers and described the company’s initial guidance as likely conservative. Separately, analysis cited a price-to-earnings ratio near 14.6 alongside an estimated free cash flow yield of 6%, figures that were used to characterize the stock as undervalued by that assessment.
Overall, the fourth-quarter performance - with EPS of $2.45 and revenue of $544.3 million - was solid, yet the lower-than-expected 2026 revenue target of $2.185 billion has drawn attention. The guidance shortfall relative to consensus has prompted discussions among analysts and may influence investor sentiment as market participants digest the implications for growth trajectory.
Context and takeaways
- Paycom posted a Q4 EPS of $2.45 and revenue of $544.3 million.
- Management guided to $2.185 billion in revenue for 2026, implying 6.5% growth and trailing consensus by about 220 basis points.
- Retention improved to 91%, cross-sell remained stable, but new-sales activity showed signs of modest weakness.