Recently, Paylocity Holding Corp (PCTY, Financial) has experienced a notable daily loss of 6.43%, contributing to a three-month decline of 11.41%. Despite these figures, the company boasts a solid Earnings Per Share (EPS) of 3.44. This analysis seeks to determine if Paylocity Holding is significantly undervalued, providing a potential investment opportunity.
Company Overview
Founded in 1997, Paylocity Holding Corp offers comprehensive payroll and human capital management (HCM) solutions aimed at small- to midsize businesses across the United States. Serving approximately 36,000 clients, Paylocity's offerings extend beyond core payroll services to include time and attendance, recruiting software, and tools for workplace collaboration and communication. With a market cap of $8.70 billion and annual sales reaching $1.40 billion, the company maintains a robust operating margin of 18.21%.
Understanding GF Value
The GF Value is a proprietary measure used to estimate the intrinsic value of a stock. It incorporates historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. According to this valuation method, Paylocity Holding's current stock price of $153.64 is significantly below its GF Value of $307.40, suggesting that the stock is undervalued. This discrepancy indicates potential for higher future returns.
Financial Strength and Stability
Investing in a company with solid financial health reduces the risk of loss. Paylocity Holding's cash-to-debt ratio of 8.66 is commendable, ranking better than 65.48% of peers in the software industry. This ratio, coupled with a fair overall financial strength rating of 6 out of 10, suggests that Paylocity is financially stable but should be monitored for any potential weaknesses.
Profitability and Growth Prospects
Paylocity has consistently demonstrated profitability, with an impressive operating margin that ranks better than 86.17% of its industry counterparts. The company's average annual revenue growth rate of 27.3% is also notable, suggesting a strong potential for continued expansion and value creation.
Comparative Analysis of ROIC and WACC
An effective way to assess a company's profitability and value creation is by comparing its Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC). For Paylocity, the ROIC stands at 4.93, which is currently below its WACC of 8.36. This indicates that while the company is generating cash flow, it's doing so at a cost higher than the capital invested, which could be a concern for potential investors.
Conclusion
Overall, Paylocity Holding (PCTY, Financial) appears significantly undervalued based on its GF Value. The company's financial health is stable, and its profitability metrics are strong. For those interested in learning more about Paylocity Holding and its potential as an investment, additional details can be found in its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
