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If You Had Bought Paylocity Holding (NASDAQ:PCTY) Shares Five Years Ago You'd Have Earned313% Returns

Simply Wall St

For many, the main point of investing in the stock market is to achieve spectacular returns. While the best companies are hard to find, but they can generate massive returns over long periods. Just think about the savvy investors who held Paylocity Holding Corporation (NASDAQ:PCTY) shares for the last five years, while they gained 313%. This just goes to show the value creation that some businesses can achieve. Also pleasing for shareholders was the 20% gain in the last three months. But this could be related to the strong market, which is up 20% in the last three months.

See our latest analysis for Paylocity Holding

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the last half decade, Paylocity Holding became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the Paylocity Holding share price has gained 188% in three years. During the same period, EPS grew by 110% each year. This EPS growth is higher than the 42% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. Of course, with a P/E ratio of 110.59, the market remains optimistic.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
earnings-per-share-growth

It is of course excellent to see how Paylocity Holding has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Paylocity Holding's financial health with this free report on its balance sheet.

A Different Perspective

It's good to see that Paylocity Holding has rewarded shareholders with a total shareholder return of 27% in the last twelve months. However, that falls short of the 33% TSR per annum it has made for shareholders, each year, over five years. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

But note: Paylocity Holding may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.