Motley Fool: Paycom is undervalued and promising

Paycom Software (NYSE: PAYC) specializes in human capital management (HCM) software.

Its platform integrates tools for payroll, recruitment, scheduling and human resources management. That sets the company apart.

Many organizations rely on multiple HCM vendors, a strategy that can involve duplicating data, but Paycom eliminates redundant work because its software is built on a single database.

Paycom creates additional value for clients through workflow automation.

For instance, its payroll software, Beti (Better Employee Transaction Interface), automates payroll by requiring employees to review and approve their paychecks prior to processing.

Paycom reported decent financial results in its first quarter, with revenue up 11% year over year to $500 million. Bottom-line growth was strong, too.

CEO Chad Richison said the company has captured just 5% of its addressable market in the U.S.; it has far less than 5% market share worldwide. That leaves a long runway for growth.

Meanwhile, Paycom’s stock is looking attractively priced, with a forward-looking price-to-earnings (P/E) ratio of 21, well below the five-year average of 47. Patient, long-term investors should consider this growth stock for their portfolios. (The Motley Fool owns shares of and recommends Paycom Software.)

My Smartest Investment

The best financial decision I’ve ever made was starting a business. – D.S., online

The Fool responds: Starting a business can turn out very, very well.

Indeed, it’s how many of the world’s richest people got rich: Jeff Bezos started a little company called Amazon, Bill Gates co-founded Microsoft and Mark Zuckerberg launched Facebook (now Meta Platforms).

Warren Buffett bought a failing textile mill and then built it into the Berkshire Hathaway of today – a conglomerate worth more than $940 billion.

But these legendary successes are not the norm.

Starting and running your own business can be exciting, fun and rewarding – financially and otherwise – but it’s easier said than done, and many small businesses fail to thrive.

When your business is young, you’ll likely be wearing lots of hats, managing finances, strategy, hiring, marketing, technology and so on.

You’ll need to secure funding and to be an effective leader – at least at the start.

You probably won’t know what you don’t know, leaving you vulnerable to problems developing. Still, for those with the right temperament and risk tolerance, it can be worth trying.

A solid, less risky and less exhausting alternative to starting a business is simply investing in great ones via the stock market.

Ask the Fool

Q: How can I find out what the home values are in my neighborhood – and my own home’s value? – N.T., Shenandoah, Iowa

A: If you’re thinking of selling, you might ask a local real estate agent or appraiser to determine a value for your home based on comparable recent sales (“comps”) in your neighborhood.

Online sites such as Realtor.com, Redfin.com and Zillow.com can help, too, showing the listed prices for homes around you.

Such sites will also often offer an estimate of the value of your own home.

Note that it may be way off – perhaps the site doesn’t know about the current condition of your home, or that you finished the basement. It can give you a general idea, though.

Q: Why do bond prices fall when interest rates increase? – K.R., Hattiesburg, Mississippi

A: This example should help: Let’s say you bought a $1,000, 30-year bond with a 4.5% interest rate.

It would pay you $45 per year until maturity, when it repays the original $1,000. (Note that while some people hold on to bonds through maturity, others buy and sell them on secondary markets.)

Now imagine that interest rates increase, and new 30-year bonds are offering 5%. The old 4.5% bond would be less attractive than the newer bond, so its price on the market would have to drop to make it more attractive to buyers.

If you sold it, you’d likely have to accept less than the original $1,000. The buyer would receive the same $45 annual payments, though, and would receive the same $1,000 at maturity.

On the other hand, when interest rates drop, bond prices rise, as people will pay a premium for older, higher-yielding bonds. Learn more at TreasuryDirect.gov.