Here's Why Investors May Bet on Paylocity (PCTY) Stock Now
Paylocity Holding Corporation PCTY is one stock investors should consider adding to their portfolio to benefit from its upside potential.
Tech stocks have made a remarkable comeback in the first half of 2023 after a massive sell-off in 2022 on recession concerns, inflationary pressure, increased oil prices and higher interest rates. With a year-to-date (YTD) rise of 30.7%, the tech-laden Nasdaq Composite has outperformed The Dow Jones Industrial Average and the S&P 500 index’s increase of 2.3% and 14.9%, respectively.
Technology stocks have more than 50% of weightage in the Nasdaq Composite index. Technology Select Sector SPDR (XLK), the most important component of the broad market index, has returned 38.2% YTD.
However, Paylocity is among such stocks that have been left behind this year’s tech rally. Therefore, considering the company’s impressive growth profile and attractive valuation, we believe it is the right time to invest in the stock.
Paylocity Holding Corporation Price and Consensus
Paylocity Holding Corporation price-consensus-chart | Paylocity Holding Corporation Quote
Why Should You Add PAYC Stock to Your Portfolio?
Paylocity stock currently trades way lower than the 52-week high, which reflects its potential to go upward. The stock’s closing price of $186.45 on Jul 6 is 32.7% lower than the 52-week high of $276.88 attained on Aug 5, 2022.
Moreover, Paylocity currently trades at an attractive valuation multiple. The stock trades at a one-year forward price-to-earnings multiple of 37.90X compared with its five-year average of 247.39X. 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 #2 (Buy).
Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or #2 and a Growth Score of A or B offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Paylocity has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 47.6%. Additionally, PCTY stock has an impressive earnings per share growth expectation for fiscal 2023 and fiscal 2024.
The Zacks Consensus Estimate of $4.91 per share for fiscal 2023 earnings suggests growth of approximately 51.1% from the year-ago period. For fiscal 2024, the consensus mark for earnings is pegged at $5.27, indicating a year-over-year increase of 7.4%.
Long-Term Growth Drivers
Paylocity offers an end-to-end SaaS (software-as-a-service) HCM (human capital management) solution that minimizes data-integrity issues across applications. SaaS solutions are easier and affordable to implement and operate than those offered by traditional software providers. These help organizations update software faster without the need for any new hardware investments, thereby allowing 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 positive about PCTY’s continued investments in SaaS technology and mobile applications.
Paylocity’s SaaS-based solution reduces time, risk and headcount related to installing and maintaining applications for on-premise products. SaaS deployments are easy and help reduce ownership costs for customers.
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 third quarter of fiscal 2023 reflect continued growth despite disruptions caused by macroeconomic headwinds and geopolitical issues. The company’s revenues and non-GAAP EPS surged 38% and 42.6%, respectively, on a year-over-year basis. The robust increase in revenues was mainly driven by better sales execution and sustained investments in technological upgrades and product innovation.
Paylocity is benefiting from the growing adoption of its solutions among clients with less than 50 employees. Healthy momentum in the company’s core and upper end of the market is a tailwind.
Further, the release of the Learning Management System and Community portal, which garnered positive feedback from clients, is encouraging. The addition of on-demand pay to its portfolio 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 Salesforce CRM, Meta Platforms META and Blackbaud BLKB. Salesforce and Meta each sport a Zacks Rank #1, while Blackbaud carries a Zacks Rank #2.
The Zacks Consensus Estimate for Salesforce's second-quarter fiscal 2024 earnings has been revised upward by a penny to $1.90 per share for the past 30 days. For fiscal 2024, earnings estimates have moved upward by a couple of cents to $7.44 per share in the past 30 days.
Salesforce's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 15.5%. Shares of CRM have soared 58.5% YTD.
The Zacks Consensus Estimate for Meta's second-quarter 2023 earnings has been revised 3 cents northward to $2.82 per share in the past 60 days. For 2023, earnings estimates have increased by a penny to $11.94 per share in the past 30 days.
Meta’s earnings beat the Zacks Consensus Estimate twice in the preceding four quarters while missing the same on two occasions, the average surprise being 15.5%. Shares of META have surged 141.9% YTD.
The Zacks Consensus Estimate for Blackbaud’s second-quarter 2023 earnings has been revised by a couple of cents northward to 93 cents per share in the past 60 days. For 2023, earnings estimates have increased to $3.75 per share from $3.68 60 days ago.
Blackbaud's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 10.4%. Shares of BLKB have rallied 21.1 % YTD.
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Salesforce Inc. (CRM) : Free Stock Analysis Report
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Meta Platforms, Inc. (META) : Free Stock Analysis Report
