Paylocity Holding Corporation (PCTY) is a user-friendly product suite that assists firms in automating and streamlining HR and payroll procedures, attracting and retaining personnel, and building culture.

The company recently reported its third-quarter earnings results. Its sales grew 32% year over year to $246 million. The rise in top-line revenue may be attributed to a 32% increase in recurring revenues (99.6% of total sales), which reached $245 million. However, interest income on funds held for clients fell 10.5% to $1 million.

The stock is down 26.6% year-to-date and 11.5% over the past three months to close its last trading session at $173.42. In addition, last month, Jefferies Financial Group lowered its price target for the stock from $255.00 to $200.00.

Here’s what could shape PCTY’s performance in the near term:

Mixed Profitability

PCTY’s trailing-12-month gross profit margin of 66.1% is 31.2% higher than the industry average of 50.4%. Its trailing-12-month net income margin and ROC are 107.3% and 68.7% higher than their respective industry averages. However, its trailing-12-month asset turnover ratio, EBITDA margin, and ROA are 67.8%, 7.2%, and 44.2% lower than their respective industry averages.

Premium Valuation

In terms of forward non-GAAP P/E, the stock is currently trading at 57.86x, 220.8% higher than the industry average of 18.04x. Also, its trailing-12-month EV/Sales of 11.34x is 303% higher than the industry average of 2.81x. Moreover, PCTY’s forward Price/Sales of 11.36x is 299.7% higher than the industry average of 2.84x.

Consensus Rating and Price Target Indicate Potential Upside

Of the 12 Wall Street analysts that rated PCTY, ten rated it Buy, and two rated it Hold. The 12-month median price target of $238.96 indicates a 37.8% potential upside. The price targets range from a low of $185.00 to a high of $325.00.

POWR Ratings Reflect Uncertainty

PCTY has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. PCTY has a C grade for Stability and Quality. Its stock beta of 1.30 is in sync with the Stability grade. In addition, the company’s mixed profitability is consistent with the Quality grade.

Of the 156 stocks in the D-rated Software – Application industry, PCTY is ranked #51.

Beyond what I’ve stated above, you can view PCTY ratings for Growth, Value, Momentum, and Sentiment here.

Bottom Line

The stock is currently trading below its 50-day and 200-day moving averages of $185.88 and $227.47, respectively, indicating a downtrend. In addition, its premium valuation and the recently lowered price objective could add to investors’ concerns. So, we think investors should wait before scooping up its shares.

How Does Paylocity Holding Corporation (PCTY) Stack Up Against its Peers?

While PCTY has an overall C rating, one might want to consider its industry peer, Commvault Systems Inc. (CVLT), Rimini Street Inc. (RMNI), and Enghouse Systems Limited (EGHSF), which has an overall A (Strong Buy) rating.

PCTY shares were trading at $161.50 per share on Monday morning, down $11.92 (-6.87%). Year-to-date, PCTY has declined -31.61%, versus a -19.91% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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