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Paylocity Holding Corporation PCTY has performed well last year. The stock has returned 28.2% during the said time frame, outperforming the industry’s rally of 23.4%.
With expected long-term earnings per share growth rate of 22% and a market cap of $2.7 billion, it seems to be a stock that investors need to hold on to if they are looking to reap long-term gains.
Let’s take a look at the factors aiding the company’s performance.
The company’s Software as a Service (SaaS) based human capital management (HCM) services have aided top-line growth. The company’s revenues came in at $86 million, reflecting an increase of 25% year over year in the second quarter of fiscal 2018.
We also remain positive about Paylocity’s regular investments in SaaS technology as the adoption of SaaS HCM solutions is increasing among corporations driven by its ability to minimize data integrity issues.
Notably, during second-quarter fiscal 2018, the company enriched its portfolio with two additions namely, Compensation Management and Surveys. While Compensation Management is aimed at improving the process of rewarding employees, Surveys will assist in increasing organizational communication for gaining employee feedback.
According to Gartner, the global SaaS market is expected to increase at a four-year compound annual growth rate (CAGR) (2016–2020) of 18.4%. With its SaaS-based applications, we think that Paylocity is well poised to grab the growth opportunity in the market.
Also, higher adoption of Paylocity’s ACA dashboard application, specializing in tracking employee count, employee status and health care plan affordability, is a major tailwind for the company.
Additionally, the company’s recently announced acquisition of BeneFLEX HR Resources – a privately held employee benefit agency has enriched the company’s product suite with a host of benefit administration related solutions. This inorganic addition is also expected to be a top-line driver going ahead.
On the last earnings call, Paylocity management stated that though the company’s R&D expenditure has increased but so has the adoption and usage rate of its platform. Notably, during the quarter, Paylocity had over a million users in a single month and this marked a new record for the company.
All these justify the Zacks Rank #3 (Hold) stock’s retention in investors’ portfolio.
Some better-ranked stocks in the broader technology sector are Western Digital Corporation WDC, Micron Technology, Inc. MU and Lam Research Corporation LRCX. While Western Digital sports a Zacks Rank #1 (Strong Buy), Micron and Lam Research carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term EPS growth rate for Western Digital, Micron and Lam Research is projected to be 19%, 10% and 17.7%, respectively.
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