Paylocity Stock Rides High on Product Strength
Today’s stock represents another of our favorite methods of stock investing. We select stocks of companies that have shown strong growth over the past few years and are dominating players in their field. As enterprises continue to digitize their operations in order to stay ahead in the changing technology landscape, companies that provide products and solutions to help them get ahead in this digital era shall bring superior gains to investors.
One such company is Paylocity Holding Corp (NASDAQ: PCTY), which is a cloud-based provider of payroll and human capital management (HCM) software solutions for medium-sized enterprises. The various human resource solutions provided by the Software as a Service (SaaS) company help drive strategic human capital decision-making and improve employee engagement through its innovative suite of products.
As the company plans to announce second-quarter results after two weeks, let us look at the growth catalysts working for Paylocity, which are pushing PCTY stock higher.
Human Resource Management is changing rapidly due to advancements in digital technology. The increasing use of mobile and connectivity have made remote working possible, which calls for advanced solutions to improve collaboration and enhance employee engagement. Innovative and easy-to-use software solutions are also needed as the tax and regulatory environment in the U.S. gets more complex and dynamic. Paylocity provides solutions to medium-sized organizations that help them tackle such challenges. As of June 30, 2017, the company had about 14,550 clients across the U.S. that on average had over 100 employees.
Organizations are making the transition to SaaS solutions as they are easier and cheaper to implement compared to the traditional software. And Paylocity is a strong player in this growing market. The HR departments are increasingly turning to digitization and adopting SaaS-based applications for human capital management, which bodes well for Paylocity stock.
The results of a market analysis by International Data Corporation (IDC) have been reported in the company’s latest Annual Report. The study mentions that the U.S. SaaS market is expected to be around $54.0 billion in 2017 and is likely to grow at a 17% compound annual growth rate (CAGR) from 2014 to 2019. (Source: “Annual Report 2017,” Paylocity Holding Corporation, June 30, 2017.)
Paylocity has the opportunity to continue growing its business over the long term, given the strength of its product portfolio and client relationships. The company’s annual revenue retention rate was over 92% in each of the fiscal years 2015, 2016, and 2017. The total revenues increased from $152.7 million in fiscal 2015 to $230.7 million in fiscal 2016, which is a 51% year-over-year increase and to $300.0 million in fiscal 2017, a 30% year-over-year increase.
The recurring revenues increased from $144.1 million in fiscal 2015 to $220.1 million in fiscal 2016, an increase of 53% year-over-year, and to $288.4 million in fiscal 2017, an increase of 31% year-over-year.
Such phenomenal growth has been behind the rise of PCTY stock. It is true that the company faces tough challenges as the market for payroll and HCM solutions is highly competitive and fragmented. However, the company’s focus on medium-sized organizations and superior easy-to-use products shall keep it ahead of most competitors.
Paylocity announced strong first-quarter fiscal year 2018 results last November. The total revenue came in at $81.5 million, an increase of 25% year-over-year. Recurring revenue was at $78.9 million, an increase of 26% year-over-year. (Source: “Paylocity Announces First Quarter Fiscal Year 2018 Financial Results,” Paylocity Holding Corporation, November 2, 2017.)
Paylocity stock has gained almost 50% over the last one year as the following chart shows.
Chart courtesy of StockCharts.com
As medium-sized organisations struggle to effectively manage their human capital in this complex and ever-changing environment, Paylocity’s innovative SaaS solutions help them overcome the challenges related to their size and scale. Paylocity is in a position to serve them better by designing HCM solutions that meet their unique needs. The industry will likely continue to grow and so will PCTY stock, given the company’s strong capabilities. Investors stand to gain from this cloud-based provider of HCM solutions, in the long term.