Paycom Software PAYC shares have soared 30.8% in the past six months, outperforming the Zacks Computer and Technology sector, the S&P 500 index and the Zacks Internet - Software industry’s decline of 10.8%, 7.3% and 4.8%, respectively.

PAYC shares are riding on its strong positioning as the most automated provider of HCM solutions in the industry. Paycom is integrating AI capabilities into its solutions and flagship products like Beti and GONE are delivering day-to-day productivity gains for clients.

However, short-term challenges remain, making it premature for investors to go all in on Paycom just yet. Let’s take a closer look at the company's strengths and ongoing risks to understand why holding the stock may be the most prudent approach for now.

Factors Benefiting Paycom Software

Paycom’s AI agent, launched six months ago, uses a proprietary semantic search model to deliver faster, more consistent client support. It reduced service tickets of 2024 by more than 25% year over year and improved immediate response rates. While maintaining a high-touch service model, the AI-driven automation is boosting internal efficiency, enhancing client satisfaction, and positively impacting service-related margins.

Additionally, Paycom’s automation-led approach sets it apart, with products like Beti, which lets employees process their own payroll, and GONE, which automates time-off management. Real-world use cases show payroll processing time cut by up to 85% and significant reductions in administrative workload. These tools drive cost savings and boost productivity for the company’s clients, strengthening Paycom’s position as a leader in HCM automation.

Factors Weighing on Paycom Software

Paycom operates in a highly competitive HCM and payroll automation space, facing direct challenges from larger, well-established players like Automatic Data Processing ADP, Workday WDAY, and Paylocity Holding PCTY. Automatic Data Processing and Workday have expanded their AI-driven payroll capabilities, while Paylocity Holding is actively targeting mid-market and enterprise clients, which are Paycom’s core customer base. Shares of Automatic Data Processing and Paylocity Holding have returned 3.3% and 10.8%, respectively, in the past six months, while Workday has lost 7.5% in the same time period.

Adding to the pressure, macroeconomic headwinds and geopolitical uncertainty have led to workforce reductions across Paycom’s client base, impacting transaction volumes and slowing new client additions. While Paycom closed 2024 with 37,500 clients, growth has decelerated, and client retention remains flat at 90%. Enterprise clients are also becoming more selective in adopting automated payroll solutions due to economic uncertainties, which may weigh on PAYC’s future revenue growth.

Paycom Software’s 2025 Guidance

For 2025, PAYC forecasts revenues in the band of $2.015-$2.035 billion, while the Zacks Consensus Estimate is pegged at $2.03 billion, implying year-over-year growth of 7.65%.

The consensus mark for 2025 earnings is pinned at $8.71 per share, which has remained unchanged over the past 30 days. The estimate indicates year-over-year growth of 6.09%.

PAYC beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, with the average surprise being 7.2%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Here’s Why You Should Hold PAYC Stock for Now

Despite near-term headwinds, Paycom remains fundamentally strong. The company recorded its best-ever sales month in January 2025 and continues to expand aggressively, adding three new offices and bringing its total outside sales teams to 57. These moves signal solid demand and strong market execution. However, rising operational and customer acquisition costs, along with a slight projected EBITDA margin dip to 41% in 2025 from 41.2% in 2024, suggest potential short-term pressure on profitability. While Paycom continues to benefit from its AI agent and flagship products, ongoing macroeconomic uncertainty and intense competition should caution investors.

PAYC currently carries a Zacks Rank #3 (Hold), suggesting that it may be wise for investors to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Automatic Data Processing, Inc. (ADP) : Free Stock Analysis Report

Workday, Inc. (WDAY) : Free Stock Analysis Report

Paycom Software, Inc. (PAYC) : Free Stock Analysis Report

Paylocity Holding Corporation (PCTY) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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