Here's Why Investors Should Add Paylocity (PCTY) to Portfolio
Paylocity Holding Corporation PCTY is a stock that investors should consider adding to their portfolio to benefit from its promising prospects.
Tech stocks have made an impressive rebound in 2023 after a massive sell-off in 2022, triggered by recessionary concerns and inflationary pressure, increased oil prices and interest rates. With a year-to-date (YTD) rise of 27.2%, the tech-laden Nasdaq Composite has outperformed The Dow Jones Industrial Average and the S&P 500 index’s increase of 0.9% and 11.7%, respectively.
Technology stocks have more than 50% of weightage in the Nasdaq Composite index. Technology Select Sector SPDR, the most important component of the broad market index, has returned 33.14% YTD.
Paylocity Holding Corporation Price and Consensus
Paylocity Holding Corporation price-consensus-chart | Paylocity Holding Corporation Quote
However, Paylocity remained one of the stocks that couldn't keep pace with the tech rally. The stock has fallen 4.7% YTD against the Zacks Internet Software Industry’s rise of 46.3%.
Though PCTY has fallen out of favor among investors, we consider that it is wise to invest in the stock for long-term gains, given the strength of its fundamentals and solid prospects.
Why Should You Bet on PCTY Stock?
Paylocity stock currently trades way lower than the 52-week high, which reflects its potential to go upward. The stock’s closing price of $185.06, on Oct 2, 2023, is 31.3% lower than the 52-week high of $269.34 attained on Oct 6, 2022.
Moreover, Paylocity currently trades at an attractive valuation multiple. The stock trades at a one-year forward price-to-earnings multiple of 31.67X compared with its five-year average of 113.22X. It also trades at a discount to the Zacks Internet Software industry’s one-year forward price-to-earnings multiple of 41.41X.
Additionally, amid the ongoing macroeconomic headwinds and geopolitical issues, it is prudent to pick solid growth companies as these are financially stable, accruing profits in established markets. These stocks, with their solid fundamentals, allow investors to hedge their funds from any economic downturn.
Apart from having solid fundamentals, Paylocity has the favorable combination of a Growth Score of B and a Zacks Rank #1 (Strong Buy) at present.
Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 or #2 (Buy) and a Growth Score of A or B offer solid investment opportunities.
PCTY has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 39.7%. Additionally, the stock has an impressive earnings per share growth expectation for fiscal 2023 and fiscal 2024.
The Zacks Consensus Estimate of $5.58 per share for fiscal 2024 earnings suggests growth of approximately 8.4% from the year-ago period. For fiscal 2025, the consensus mark for earnings is pegged at $6.58 per share, indicating a year-over-year increase of 17.9%.
Long-Term Growth Drivers
Paylocity offers an end-to-end software-as-a-service (SaaS) human capital management (HCM) solution that minimizes data-integrity issues across applications. SaaS solutions are easier and affordable to deploy and operate than those offered by traditional software providers. These solutions assist organizations in swiftly updating their software without additional hardware investments, thereby enabling them to react better to changes in their business environments.
In the last few years, a significant portion of revenues has been generated from clients moving from traditional payroll service providers to the company’s SaaS-based services. We are confident that PCTY will be able to capitalize on these opportunities due to its ongoing investments in SaaS technology and mobile applications.
The company's SaaS deployments are easy and help reduce ownership costs for customers. These solutions decreased the time, risk and staffing requirements associated with the installation and maintenance of on-premise applications.
The growth of cloud computing has supported the SaaS delivery model. Per the latest Fortune Business Insights report, the global SaaS market is expected to grow from $237.48 billion in 2022 to $908.21 billion by 2030, witnessing a CAGR of 18.7% during the 2022-2028 forecast period. With its SaaS-based applications, we think that Paylocity is well-positioned to lead the market.
Paylocity’s latest reported financial results for the fourth quarter of fiscal 2023 reflect continued growth despite disruptions caused by macroeconomic headwinds and geopolitical issues. The company’s total revenues grew 34.7% compared with the fourth quarter of the previous fiscal. The robust increase in revenues was mainly driven by better sales execution, the addition of new clients and increased average revenue per client.
PCTY is benefiting from the growing adoption of its solutions among clients. In the fiscal 2023, Paylocity’s customer base increased by 9% in comparison to the prior year. It concluded fiscal 2023 with 36,200 clients compared with 33,300 in fiscal 2024.
Further, the release of the Learning Management System and Community portal, which garnered positive feedback from clients, is encouraging. The announcement of feature enhancements in its HCM Platform like Market Pay and Advanced Scheduling is likely to boost client wins. Paylocity’s regular investments in technological upgrades, along with product innovation, will continue to boost its top line.
Other Stocks to Consider
Some other top-ranked stocks from the broader technology sector are Synopsys SNPS, NVIDIA NVDA and Splunk SPLK, each sporting a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Synopsys’ fourth-quarter fiscal 2023 earnings has been revised upward by 12 cents to $3.04 per share in the past 60 days. For fiscal 2023, earnings estimates have moved upward by 27 cents to $11.09 per share in the past 60 days.
Synopsys’ earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 4.23%. Shares of CRM have fallen 4.7% year to date.
The Zacks Consensus Estimate for NVIDIA’s third-quarter fiscal 2023 earnings has been revised by 8 cents northward to $3.32 per share in the past 30 days. For fiscal 2023, earnings estimates have increased by a penny to $10.47 in the past 30 days.
NVDA's earnings beat the Zacks Consensus Estimate in the preceding three quarters, while missing the same on one occasion, the average surprise being 9.79%. Shares of NVDA have rallied 206.5% YTD.
The Zacks Consensus Estimate for Splunk's third-quarter fiscal 2024 earnings has been revised upward by a penny to $1.12 per share for the past 7 days. For fiscal 2024, earnings estimates have moved upward by a penny to $3.78 per share in the past seven days.
Splunk's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 154.90%. Shares of SPLK have soared 69.8% year to date.
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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
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Paylocity Holding Corporation (PCTY) : Free Stock Analysis Report
