Paylocity: Gem In A Highly Competitive Industry

  • PCTY’s growth has been impressive (CAGR: +30%), driven by a compelling offering and industry tailwinds that are accelerated by technological development.
  • The company’s cloud-based subscription model has allowed for impressive margins (Adj. EBITDA: 31%), which we believe has further room to grow through scale and cost optimization.
  • PCTY faces considerable competition but has shown a clear track record of outperformance, implying a compelling offering and GTM approach. We see this as a concern.
  • When compared to its peers, the company outperforms on most key metrics, with an FCF margin of almost double the average.
  • PCTY is not cheap but its valuation suggests upside we feel, with an FCF yield of ~3% and an NTM EBITDA multiple of 19x. For a growth business, this is reasonable.

Company description

Paylocity Holding (NASDAQ:PCTY) Corporation is a leading provider of cloud-based payroll and human capital management (HCM) software solutions for small and medium-sized businesses (SMBs) in the United States. Founded in 1997 and headquartered in Schaumburg, Illinois, Paylocity offers