Option FanaticOptions, stock, futures, and system trading, backtesting, money management, and much more!

ORLY Stock Study (6-29-26)

Posted by on August 20, 2026 at 07:43 | Last modified: June 29, 2026 10:09

I recently did a stock study on O’Reilly Automotive, Inc. (ORLY, $89.55).

M* writes:

     > Founded in 1957, O’Reilly Auto Parts is one of the largest specialty
     > retailers of automotive aftermarket parts, tools, supplies, equipment,
     > and accessories, serving both DIY and professional customers. The
     > company operates nearly 6,600 stores across 48 US states, Puerto Rico,
     > Mexico, and Canada. In fiscal 2025, O’Reilly generated nearly $18 billion
     > in sales, with its dual market strategy yielding a balanced revenue mix,
     > split between retail DIY customers (49%) and professional service
     > orders (49%). The balance of its sales is derived from noncore categories,
     > including wholesale distribution to independent parts distributors,
     > heavy-shop equipment sales, and value-added services.

Over the past 10 years, this large-size company grows sales and earnings at annualized rates of 9.3% and 18.1%. Lines are up, mostly straight, and parallel. Value Line (VL) gives an Earnings Predictability score of 95. Shares outstanding decrease a noticeable 41.0% (5.7%/year).

Over the past 10 years, PTPM leads peer and industry averages while ranging from 17.6% in ’19 to 20.9% in ’21 with a last-5-year mean of 19.1%. ROE is N/A due to triple digit percentages—most recently negative (shareholder equity consistently falling due to heavy stock buybacks and increasing store count). Debt-to-capital is greater than peer and industry averages while increasing from 53.7% to 110% (’25) with a last-5-year mean of 116%.

Quick ratio is only 0.1 but interest coverage 14.9 (13.9) per M* (VL) who assigns “Wide” Economic Moat, gives an “Exemplary” rating for Capital Allocation, and an A grade for Financial Health (per BI website). VL gives a B++ grade for Financial Strength.

Negative shareholder equity breaks ROE and makes return on invested capital (ROIC) a better metric due to inclusion of debt along with equity in the denominator. In fact, ORLY is an exceptionally profitable business with a last-5-year mean ROIC over 40%. The company generates strong, consistent cash flows from the automotive aftermarket (per YF as cited by Google AI).

With regard to sales growth:

My 6.0% per year forecast is below the range.

With regard to EPS growth:

My 8.5% forecast is below the long-term-estimate range (mean of eight: 11.5%). Initial value is ’25 EPS of $2.97/share rather than 2026 Q1 EPS of $3.06 (TTM).

My Forecast High P/E is 22.0. Over the past decade, high P/E ranges from 20.7 in ’20 to 36.6 in ’25 with last-5-year mean of 28.6 and a last-5-year-mean average P/E of 24.3. I am near bottom of the range (only ’20 is less).

My Forecast Low P/E is 20.0. Over the past decade, low P/E ranges from 10.7 in ’20 to 26.5 in ’25 with a last-5-year mean of 19.9. I am forecasting [aggressively] just above the latter.

My Low Stock Price Forecast (LSPF) of $59.40 is default based on initial value from above: 33.7% less than previous close and 30.0% less than the 52-week low.

These inputs land ORLY in the SELL zone with a U/D ratio of 0.3. Total Annualized Return (TAR) is 1.9%.

PAR (using Forecast Average—not High—P/E) of 0.9% is unthinkable for an investment candidate. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR but even that falls way short of the risk-free rate (T-bills).

To assess MOS, I usually start by comparing my inputs with those of Member Sentiment (MS) but it’s not even worth doing given the low return numbers just reviewed.

With regard to valuation, PEG is 2.0 and 3.5 per Zacks and my projected P/E: overvalued (M* has 2.5). Relative Value [(current P/E) / 5-year-mean average P/E] is expensive at 1.2. “Quick and dirty” cash flow has stock undervalued by 9%. M* (CFRA) reports stock overvalued by 1% (47%).

Visual inspection to me looked encouraging along with a stock trading near its 52-week low. As it turns out, though, it has much farther to cut into recent years’ stock gains before it gets anywhere close to a buy point.

Per U/D, ORLY would be a BUY under $69/share. Given a forecast high price ~$98, the BetterInvesting® TAR criterion would be met [98.3 / ((14.87 / 100 ) +1 ) ^ 5] ~ $49 (no dividend).

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

Categories: BetterInvesting® | Comments (0) | Permalink

MA Stock Study (6-28-26)

Posted by on August 17, 2026 at 07:25 | Last modified: June 28, 2026 10:46

I recently did a stock study on Mastercard Inc. (MA, $499.02).

M* writes:

     > Mastercard is the second-largest payment processor in the
     > world, having processed close to $11 trillion in volume
     > during 2025. Mastercard operates in over 200 countries
     > and processes transactions in over 150 currencies.

Over the past 10 years, this large-size company grows sales and earnings at annualized rates of 12.4% and 18.3%. Lines are up, mostly straight, and parallel except for sales+EPS decline in ’20. Value Line (VL) gives an Earnings Predictability score of 90. Shares outstanding decrease 17.7% (2.1%/year).

Over the past 10 years, PTPM leads peer and industry averages while ranging from 48.2% in ’18 to 57.6% in ’19 with a last-5-year mean of 54.5%. ROE leads peer and industry averages while increasing from 64.1% to 186% (’25) with a last-5-year mean of 162.0% (shareholder equity consistently positive with 3.5% CAGR). Debt-to-capital is greater than peer averages but less than the industry while increasing from 47.8% to 71.1% (’25) with a last-5-year mean of 69.8%.

Quick ratio is 0.56 and interest coverage 27.7 per M* who assigns “Wide” Economic Moat, gives an “Standard” rating for Capital Allocation, and an A grade for Financial Health (per BI website). VL gives an A+ grade for Financial Strength.

Four references lead Google AI to state:

     > Mastercard’s debt level is generally not concerning, despite
     > appearing high on paper. While the company carries around
     > $18.96 billion in total debt—resulting in a high debt-to-equity
     > ratio—its robust cash generation, massive scale, and exceptional
     > interest coverage make the obligation highly manageable.

With regard to sales growth:

My 9.0% per year forecast is below the range.

With regard to EPS growth:

My 11.0% forecast is below the long-term-estimate range (mean of eight: 15.9%). Initial value is ’25 EPS of $16.52/share rather than 2026 Q3 EPS of $17.28 (TTM).

My Forecast High P/E is 35.0. Over the past decade, high P/E ranges from 29.5 in ’16 to 45.8 in ’21 (excluding 57.7 in ’20) with last-5-year mean of 39.3 and a last-5-year-mean average P/E of 34.6. I am near bottom of the range (only ’16 is less).

My Forecast Low P/E is 22.0. Over the past decade, low P/E increases from 21.3 to 28.2 (’25) with a last-5-year mean of 29.9. I am forecasting near bottom of the range (only ’16 is less).

My Low Stock Price Forecast (LSPF) of $363.40 is default based on initial value from above: 27.2% less than previous close and 21.8% less than the 52-week low.

Over the past 10 years, payout ratio (PR) ranges from 16.6% in ’19 to 25.1% in ’20 with a last-5-year mean of 19.2%. My 16.0% forecast is at bottom of the range.

These inputs land MA in the BUY zone with a U/D ratio of 3.5. Total Annualized Return (TAR) is 14.8%.

PAR (using Forecast Average—not High—P/E) of 10.3% is less than I seek for a large-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on 124 studies done in the past 90 days (my study and 42 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 13.0%, 14.1%, 35.0, 28.2, and 19.2%, respectively. I am lower (or equal) across the board. VL projects a future average P/E of 30.0 that is less than MS (31.6) and greater than mine (28.5).

MS high / low EPS are $32.97 / $16.42 versus my $27.84 / $16.52 (per share). My high EPS is less due to a lower growth rate. VL (M*) high EPS of $28.90 ($34.19) is in the middle (greater than both).

MS LSPF of $416.50 implies a Forecast Low P/E of 25.4: less than the above-stated 28.2. MS LSPF is 10.1% less than the default $16.42/share * 28.2 = $463.04 resulting in more conservative zoning. MS LSPF is 14.6% greater than mine, though.

MOS is robust in the study because my inputs are near or below historical/analyst/MS averages/ranges. Supporting the MOS is MS TAR exceeding mine by 4.0% per year and my lower LSPF.

With regard to valuation, PEG is 1.6 and 2.4 per Zacks and my projected P/E: overvalued (M* has 1.3). Relative Value [(current P/E) / 5-year-mean average P/E] is cheap at 0.84. “Quick and dirty” cash flow (including capex, which is debatable) has stock undervalued by 45%. M* (CFRA) reports stock undervalued (overvalued) by 9% (7%).

Per U/D, MA is a BUY right now under $516/share. [974.4 / ((14.07 / 100 ) +1 ) ^ 5] ~ $504 meets the BetterInvesting® TAR criterion given a forecast high price ~$974.

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

Categories: BetterInvesting® | Comments (0) | Permalink

CTAS Stock Study (6-26-26)

Posted by on August 14, 2026 at 07:15 | Last modified: June 27, 2026 08:35

I recently did a stock study on Cintas Corp. (CTAS, $169.09).

M* writes:

     > Cintas has roots dating back to 1929, when the Farmer family cleaned
     > and resold dirty rags to manufacturing plants in Ohio. The firm has
     > expanded its business organically and through acquisitions, and today
     > Cintas acts as a one-stop outsourcing partner for businesses. Cintas
     > will design, manufacture, collect, and clean every employee uniform
     > for a small weekly sum, taking on the upfront capital expense itself.
     > At the same stop, Cintas can also replace soiled or depleted mats,
     > mops, trash liners, towels, first aid supplies, fire extinguishers, and
     > cleaning products. Businesses value an outsourcing partner like
     > Cintas as it simplifies operations and leaves noncore tasks with
     > high regulatory standards in the hands of professionals.

Over the past 10 years, this large-size company grows sales and earnings at annualized rates of 8.0% and 20.6% (FY ends May 2026). Lines are up, mostly straight, and parallel. Value Line (VL) gives an Earnings Predictability score of 100. Shares outstanding increase 6.7% (0.8%/year).

Over the past 10 years, PTPM leads peer and industry averages while increasing from 14.6% to 21.9% (’25) with a last-5-year mean of 19.8%. ROE is even with peer averages while leading the industry and increasing from 21.9% to 38.6% (’25) with a last-5-year mean of 35.0% (shareholder equity consistently positive with 10.9% CAGR). Debt-to-capital is less than peer and industry averages while falling from 41.4% to 36.2% (’25) with a last-5-year mean of 41.0%.

Quick ratio is 0.95 and interest coverage 24.2 per M* who assigns “Wide” Economic Moat, gives an “Exemplary” rating for Capital Allocation, and an A grade for Financial Health (per BI website). VL gives a A grade for Financial Strength.

With regard to sales growth:

My 7.0% per year forecast is below the range.

With regard to EPS growth:

My 10.0% forecast is below the long-term-estimate range (mean of eight: 11.6%). Initial value is ’25 EPS of $4.40/share rather than 2026 Q3 EPS of $4.74 (TTM).

My Forecast High P/E is 35.0. Over the past decade, high P/E increases from 23.3 to 51.8 (’25) with last-5-year mean of 42.2 and a last-5-year-mean average P/E of 36.1. I am below the last five years.

My Forecast Low P/E is 26.0. Over the past decade, low P/E increases from 19.1 to 38.1 (’25) with a last-5-year mean of 30.0. I am [aggressively] forecasting the lowest since ’20.

My Low Stock Price Forecast (LSPF) of $114.40 is default based on initial value from above: 32.3% less than previous close and 29.0% less than the 52-week low.

Over the past 10 years, payout ratio (PR) increases from 25.7% to 35.5% (’25). My 23.0% forecast is at bottom of the range.

These inputs land CTAS in the HOLD zone with a U/D ratio of 1.4. Total Annualized Return (TAR) is 8.6%.

PAR (using Forecast Average—not High—P/E) of 5.8% is less than I seek for a large-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on 85 studies done in the past 90 days (my study and 24 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 8.6%, 10.7%, 37.0, 28.0, and 37.3%, respectively. I am lower across the board. VL projects a future average P/E of 30.0 that is less than MS (32.5) and less than mine (30.5).

MS high / low EPS are $7.84 / $4.71 versus my $7.09 / $4.40 (per share). My high EPS is less due to a lower growth rate. VL (M*) high EPS of $7.90 ($7.55) is greater than both (in the middle).

MS LSPF of $130.60 implies a Forecast Low P/E of 27.7: less than the above-stated 28.0. MS LSPF is 1.0% less than the default $4.71/share * 28.0 = $131.88 resulting in more conservative zoning. MS LSPF is 14.2% greater than mine, though.

MOS is moderate in the study because my inputs are near or below some historical/analyst/MS averages/ranges (forecast P/E range is the big exception). Supporting the MOS is MS TAR exceeding mine by 3.5% per year.

With regard to valuation, PEG is 2.7 and 3.2 per Zacks and my projected P/E: overvalued (M* has 2.3). Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 1.0. M* reports stock fairly valued while CFRA reports 37% overvalued.

Per U/D, CTAS is a BUY under ~$148/share. Given a forecast high price ~$248, [248.2 / ((14.17 / 100 ) +1 ) ^ 5] ~ $128 would meet the BetterInvesting® TAR criterion.

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

Categories: BetterInvesting® | Comments (0) | Permalink

XP Stock Study (6-24-26)

Posted by on August 11, 2026 at 07:10 | Last modified: June 24, 2026 08:43

I recently did a stock study on XP, Inc. (XP, $15.72).

M* writes:

     > XP Inc is a Cayman Island-based technology-driven
     > financial services platform. It is a provider of low-fee
     > financial products and services in Brazil. The company
     > evaluates its business through a single segment such
     > as monitoring operations, making decisions on fund
     > allocation, and evaluating the performance. It generates
     > revenue through the Brokerage commission. Geographically,
     > the company derives maximum revenue from Brazil and
     > also has its presence in other countries.

Since public trading [as sponsored ADR] begins in 2019, this medium-size company grows sales and earnings at annualized rates of 8.0% and 20.6%. Lines are up, mostly straight, and parallel. Value Line (VL) gives an Earnings Predictability score of 90. Shares outstanding increase 3.9% (0.6%/year).

Since 2019, PTPM leads peer and industry averages while increasing from 42.9% to 68.4% (’25) with a last-5-year mean of 63.1%. ROE leads peer and industry averages despite falling from 52.1% to 20.9% (’25) with a last-5-year mean of 22.0% (shareholder equity consistently positive with 10.5% CAGR). Debt-to-capital is greater than peer averages and less than the industry while ranging from 66.2% in ’21 to 85.2% in ’24 with a last-5-year mean of 72.8%.

Quick ratio is 0.55 and interest coverage 11.0 per M* who gives an alarming D grade for Financial Health (per BI website). VL gives a B+ grade for Financial Strength and a debt ratio of 0.16, which is generally regarded as very safe (per Google AI).

With regard to sales growth:

My 8.0% per year forecast is below the range.

With regard to EPS growth:

My 10.0% forecast is below the long-term-estimate range (mean of four: 13.6%). Initial value is ’25 EPS of $1.74/share rather than 2026 Q1 EPS of $1.83 (TTM).

My Forecast High P/E is 11.0. Since 2019, high P/E decreases from 75.7 in ’16 to 11.9 (’25) with last-5-year mean of 24.9 and a last-5-year-mean average P/E of 18.1. I am below the range.

My Forecast Low P/E is 6.0. Since 2019, low P/E ranges from 60.0 to 6.2 (’25) with a last-5-year mean of 11.3. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $10.40 is default based on initial value from above: 33.8% less than previous close and 29.7% less than the 52-week low.

Since dividend inception, payout ratio (PR) is 90.6% in ’23, 48.8% in ’24, and 10.1% in ’25. My conservative forecast is 5.0%.

These inputs land XP in the HOLD zone with a U/D ratio of 2.8. Total Annualized Return (TAR) is 14.9%.

PAR (using Forecast Average—not High—P/E) of 9.3% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on only three other studies done in the past 90 days (too small a sample for anything but anecdotal comparison), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 12.0%, 11.0%, 18.0, 8.1, and 36.6%, respectively. I am lower across the board. VL projects a future average P/E of 14.0 that is greater than MS (13.1) and much greater than mine (8.5).

MS high / low EPS are $3.08 / $1.70 versus my $2.80 / $1.74 (per share). My high EPS is less due to a lower growth rate. VL high EPS of $3.00 is in the middle.

MS LSPF of $10.80 implies a Forecast Low P/E of 6.4: less than the above-stated 8.1. MS LSPF is 21.6% less than the default $1.70/share * 8.1 = $13.77 resulting in more conservative zoning. MS LSPF is still 3.9% greater than mine, though.

MOS is robust in the study because my inputs are near or below historical/analyst/MS averages/ranges. Also supporting this assessment is the lowest TAR of three MS studies exceeding mine by 5.0% per year.

With regard to valuation, PEG is 0.5 and 0.8 per Zacks/M* and my projected P/E: undervalued. Relative Value is quite low at 0.5 [(current P/E) / 5-year-mean average P/E]. M* reports stock at a 7% discount.

I hope more in the community study this stock so we can accrue a better understanding of some quirkiness including a D Financial Health grade (with such a low debt ratio?), a 1x cash flow multiplier [per VL, the lowest of three categories its covered stocks fall into is “Low Multiples (4x to 10x cash flow): Applied to slower-growth, highly capital-intensive, or mature businesses.” XP is not capital-intensive; it operates an asset-light, technology-driven business model. It has been around for 25 years but functions as a modernized, high-growth fintech], and MarketWatch’s 2025 stated EPS that is only 18% of 2026.

Per U/D, XP is a BUY under $15.50/share. Given a forecast high price ~$31, [30.8 / ((14.37 / 100 ) +1 ) ^ 5] ~ $15.70 would meet the BetterInvesting® TAR criterion.

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

Categories: BetterInvesting® | Comments (0) | Permalink

ROL Stock Study (6-22-26)

Posted by on August 6, 2026 at 07:46 | Last modified: June 22, 2026 08:15

I recently did a stock study on Rollins, Inc. (ROL, $44.96).

M* writes:

     > Rollins is a global leader in route-based pest control services,
     > with operations primarily in the United States and across North,
     > Central, and South America, Europe, the Middle East, Africa,
     > and Australia. Its portfolio of pest-control brands includes the
     > prominent Orkin brand, a market leader in the US and Canada,
     > with near-national coverage. It also has a portfolio of other
     > brands, which it uses to reach customers through alternative
     > sales channels. Residential pest and termite prevention
     > accounts for the majority of Rollins’ services, reflecting its
     > ongoing focus on the US and Canadian markets.

Over the past decade, this medium-size company grows sales and earnings at annualized rates of 10.4% and 14.6%. Lines are mostly up, straight, and parallel except for a YOY EPS decline in ’19. Value Line (VL) gives an Earnings Predictability score of 90. Shares outstanding decrease 1.4% (0.2%/year).

Over the past decade, PTPM leads peer and industry averages while ranging from 13.0% in ’19 to 19.6% in ’21 with a last-5-year mean of 18.8%. ROE leads peer and industry averages while ranging from 25.1% in ’19 to 39.0% in ’23 with a last-5-year mean of 34.2% (shareholder equity consistently positive with 10.3% CAGR). Debt-to-capital is less than peer and industry averages despite increasing from zero to 43.0% (’25) with a last-5-year mean of 34.1%.

Quick ratio is 0.47 and interest coverage 23.1 per M* who assigns “Wide” Economic Moat, gives “Exemplary” rating for Capital Allocation, and an A grade for Financial Health (per BI website). VL gives a B++ grade for Financial Strength.

With regard to sales growth:

My 6.0% per year forecast is below the range.

With regard to EPS growth:

My 8.0% forecast is below the long-term-estimate range (mean of eight: 11.5%). Initial value is ’25 EPS of $1.09/share.

My Forecast High P/E is 50.0. Over the past 10 years, high P/E ranges from 44.5 in ’16 to 81.1 in ’20 with last-5-year mean of 55.6 and a last-5-year-mean average P/E of 48.0. I am near bottom of the range (only ’16 is less).

My Forecast Low P/E is 30.0. Over the past 10 years, low P/E ranges from 30.8 in ’16 to 50.6 in ’19 with a last-5-year mean of 40.4. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $32.70 is default based on initial value from above: 27.3% less than previous close and 26.4% less than the 52-week low.

Over the past 10 years, Payout Ratio (PR) ranges from 57.3% in ’22 to 75.7% in ’19 with a last-5-year mean of 60.7%. I am forecasting below the range at 57.0%.

These inputs land ROL in the HOLD zone with a U/D ratio of 2.9. Total Annualized Return (TAR) is 13.4%.

PAR (using Forecast Average—not High—P/E) of 8.7% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on 64 studies done in the past 90 days (29 outliers including my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 8.8%, 10.6%, 52.1, 39.8, and 59.9%, respectively. I am lower across the board. VL projects a future average P/E of 45.0 that is less than MS (46.0) and greater than mine (40.0).

MS high / low EPS are $1.81 / $1.08 versus my $1.60 / $1.09 (per share). My high EPS is less due to a lower growth rate. VL (M*) high EPS of $1.70 ($1.84) is in the middle (greater than both).

MS LSPF of $42.10 implies a Forecast Low P/E of 39.0: less than the above-stated 39.8. MS LSPF is 2.1% less than the default $1.08/share * 39.8 = $42.98 resulting in more conservative zoning. MS LSPF is 28.8% greater than mine, though.

MOS is robust in the study because my inputs are near or below most historical/analyst/MS averages/ranges. MS TAR exceeding mine by 1.1% per year (per BI website†) and my substantially lower LSPF support the assessment.

With regard to valuation, PEG is 2.8 and 4.8 per Zacks and my projected P/E: quite overvalued (M* has 3.4 for ’25). Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.9. “Quick and Dirty” free cash flow method has stock undervalued by 41% (factoring in capex, which is debatable). M* reports stock at an 11% discount.

Per U/D, ROL is a BUY under $44/share. Given a forecast high price $80, [80.0 / ((13.77 / 100 ) +1 ) ^ 5] ~ $42 would meet the BetterInvesting® TAR criterion.

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

† — I think this is wrong. Google AI reports CAGR difference (excluding dividend) is 3.6%.

Categories: BetterInvesting® | Comments (0) | Permalink

PCTY Stock Study (6-17-26)

Posted by on August 3, 2026 at 07:02 | Last modified: June 22, 2026 07:46

I recently did a stock study on Paylocity Holding Corp. (PCTY, $104.31). The previous study is here.

M* writes:

     > Paylocity is a cloud-based human capital management provider
     > offering payroll, compliance, and human resources management
     > solutions. With the addition of expense and IT management
     > modules, Paylocity unifies back-office operations spanning HR,
     > finance, and IT on a single platform and bills customers
     > on a subscription basis. The firm’s customer base skews
     > toward the midmarket and is primarily based in the US.

Since 2018 (’16-’17 excluded from full analysis due to EPS of d$0.08/share and $0.12/share that would artificially inflate historical growth rate), this medium-size company grows sales and earnings at annualized rates of 24.0% and 29.0% (FY ends Jun 30). Lines are up, mostly straight, and parallel. Value Line (VL) gives an Earnings Predictability score of 80. Shares outstanding increase 3.1% (0.4%/year).

Since 2018, PTPM leads peer averages but lags the industry despite increasing from 4.4% to 19.4% (’25) with a last-5-year mean of 14.3%. ROE leads peer and industry averages while ranging from 15.1% in ’21 to 18.4% in ’25 with a last-5-year mean of 17.1% (shareholder equity consistently positive with 29.6% CAGR). Debt-to-capital is much lower than peer and industry averages with a last-5-year mean of 10.5%.

Quick ratio is only 0.1 and interest coverage N/A per M* who gives “Exemplary” rating for Capital Allocation but only a C grade for Financial Health (per BI website). VL gives an A grade (no debt due) for Financial Strength.

With regard to sales growth:

My 7.0% per year forecast is below the range.

With regard to EPS growth:

My 9.0% forecast is below the long-term-estimate range (mean of five: 13.0%). Initial value is ’25 EPS of $4.02/share rather than 2026 Q3 EPS of $4.69 (TTM).

My Forecast High P/E is 35.0. Since 2018, high P/E ranges from 55.7 in ’25 to 131 in ’20 (excluding high triple digits in ’21 and ’22) with last-5-year mean of 76.8 and a last-5-year-mean average P/E of 60.5. I am well below the range.

My Forecast Low P/E is 20.0. Since 2018, low P/E ranges from 32.5 in ’25 to 64.3 in ’23 (excluding mid-to-upper 90s in ’21 and ’22) with a last-5-year mean of 44.3. I am forecasting well below the range.

My Low Stock Price Forecast (LSPF) of $80.40 is default based on initial value from above: 22.9% less than previous close and 13.5% less than the 52-week low.

These inputs land PCTY in the BUY zone with a U/D ratio of 4.7. Total Annualized Return (TAR) is 15.7%.

PAR (using Forecast Average—not High—P/E) of 10.3% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on only 13 studies (too small for anything but anecdotal comparison) done in the past 90 days (my study and six outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 9.5%, 12.9%, 31.0, and 21.9, respectively. I am lower on growth rates. VL projects a future average P/E of 27.0 that is greater than MS (26.5) and less than mine (27.5).

MS high / low EPS are $8.33 / $4.25 versus my $6.19 / $4.02 (per share). My high EPS is less due to a lower growth rate. VL (M*) high EPS of $9.25 ($7.87) soars above (is in the middle of) both.

MS LSPF of $89.10 implies a Forecast Low P/E of 21.0: less than the above-stated 21.9. MS LSPF is 4.3% less than the default $4.25/share * 21.9 = $93.08 resulting in more conservative zoning. MS LSPF is 10.8% greater than mine, though.

MOS is robust in the study because my inputs are near or below most historical/analyst/MS averages/ranges. MS TAR exceeding mine by 7.0% (I’d consider this too high given a larger sample size) supports the assessment.

With regard to valuation, PEG is 1.3 and 2.3 per M* (’25) and my projected P/E: fairly valued. Relative Value is dirt cheap at 0.4 [(current P/E) / 5-year-mean average P/E]. “Quick and Dirty” free cash flow method has stock undervalued by 64% (factoring in capex, which is debatable). M* reports stock at a 22% discount.

Per U/D, PCTY is a BUY right now under $114/share. Given a forecast high price ~$216, BetterInvesting® TAR criterion is met [216.7 / ((14.87 / 100 ) +1 ) ^ 5] ~ $108 (no dividend).

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

Categories: BetterInvesting® | Comments (0) | Permalink