PCTY Stock Study (6-17-26)

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:

• YF gives YOY ACE 10.2% and 7.6% for ’26 and ’27 (based on 19 analysts).
• Zacks gives YOY ACE 10.2% and 7.5% for ’26 and ’27 (7 analysts).
• VL projects 8.1% per year from ’25-’30.
• CFRA gives ACE 10.2% YOY and 8.9% per year for ’26 and ’25-’27, respectively (19).
• M* gives 2-year ACE of 10.0% per year and projects 8.7% in its Equity Report.

My 7.0% per year forecast is below the range.

With regard to EPS growth:

• MarketWatch gives ACE 11.3% and 10.9% per year for ’25-’27 and ’25-’28, respectively (based on 22 analysts).
• Nasdaq.com gives YOY ACE 8.8% and 7.5% per year for ’27 and ’26-’28 [6 / 6 / 1 analyst(s) for ’26 / ’27 / ’28].
• Finviz gives 5-year annualized ACE of 10.1% (7).
• LSEG has LTG at 12.7%.
• YF gives YOY ACE 12.7% and 7.6% for ’26 and ’27, respectively (19).
• Zacks gives YOY ACE 12.6% and 6.4% for ’26 and ’27, respectively (6).
• VL projects 18.1% per year from ’25-’30.
• CFRA gives ACE 116% YOY for ’26 (puzzling) but 7.7% YOY for ’27 (19).
• M* gives long-term ACE of 14.4%/year and projects 9.8% (GAAP; adjusted is 14.4%) from ’25-’30 in Equity Report.

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).

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