A Once-in-a-Decade Opportunity: 1 Super Growth Stock Down 70% to Buy and Hold Forever
2024-09-16 01:30:00
Typically, value hunting among stocks that have plummeted more than 70% at any given point in their history can be dangerous. History suggests that winning stocks keep winning and that investors would be better off “watering their flowers and digging up their weeds.”
However, there are exceptions to this notion.
Take Paycom (NYSE: PAYC) and its human capital management (HCM) software-as-a-service (SaaS) solutions, for example. The stock is currently 70% off its high. In 2019, the upstart company had sales of roughly $600 million and a share price of around $170. Today, the company’s share price is the same, yet revenue has basically tripled.
This occurrence, paired with Paycom’s resilient free cash flow generation, leaves the company now trading at what could prove to be a once-in-a-decade valuation. While the market remains uncertain about the company’s growth story, here’s the case for buying and holding Paycom forever.
Anchored by a balance sheet that’s home to $346 million in cash and $0 in long-term debt, management has begun buying back shares at these lower prices and now has a $1.5 billion share buyback plan authorized. Compared to the company’s market cap of $9.7 billion, this buyback authorization could go a long way toward helping Paycom’s share price turn around.
Last but not least, Paycom pays a 0.9% dividend, but it has yet to raise it after starting it six quarters ago. While a dividend increase would be nice for investors, management may be more focused on buying back shares at today’s prices.
Ultimately, I think Paycom’s sales growth could be poised to turn around over the next couple of years. This rebound, paired with Paycom’s history of profitably innovating its products, leaves me more than happy to pick up shares at this once-in-a-decade valuation and hold them for the long term.
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Josh Kohn-Lindquist has positions in Paycom Software. The Motley Fool has positions in and recommends Paycom Software and Workday. The Motley Fool has a disclosure policy.
A Once-in-a-Decade Opportunity: 1 Super Growth Stock Down 70% to Buy and Hold Forever was originally published by The Motley Fool
