Paylocity Holding Corp (PCTY, Financial) has recently experienced a daily loss of 11.09% and a 3-month loss of 28.66%. Despite this, the company maintains an Earnings Per Share (EPS) of 2.5. Given these figures, one might wonder, is the stock significantly undervalued? This article aims to answer this question by providing a comprehensive valuation analysis of Paylocity Holding (PCTY). Read on to gain a deeper understanding of the company's financial position and future prospects.
A Snapshot of Paylocity Holding Corp (PCTY, Financial)
Founded in 1997, Paylocity Holding Corp is a provider of payroll and human capital management solutions. The company caters to small- to midsize clients in the United States, servicing about 36,000 businesses as of fiscal 2023. Paylocity offers a range of solutions, including time and attendance software, recruiting tools, and workplace communication platforms. The company's stock price currently stands at $159.51, while its GF Value, an estimate of fair value, is $353.59. This disparity suggests that the stock may be significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is considered overvalued, and its future returns are likely to be poor. Conversely, if it is significantly below the GF Value Line, its future returns are expected to be higher.
According to GuruFocus Value calculation, Paylocity Holding (PCTY, Financial) is believed to be significantly undervalued. With a current price of $159.51 per share and a market cap of $9 billion, the stock is projected to offer higher future returns due to its current undervalued status.
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Assessing Paylocity Holding's Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it's crucial to thoroughly review a company's financial strength before deciding to invest. A good starting point is to look at the cash-to-debt ratio and interest coverage. Paylocity Holding has a cash-to-debt ratio of 4.11, better than 55.68% of companies in the Software industry. The overall financial strength of Paylocity Holding is ranked 6 out of 10, indicating fair financial strength.
Profitability and Growth of Paylocity Holding
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Paylocity Holding has been profitable 7 out of the past 10 years. Over the past twelve months, the company had a revenue of $1.20 billion and Earnings Per Share (EPS) of $2.5. Its operating margin is 13.2%, which ranks better than 79.11% of companies in the Software industry. Overall, the profitability of Paylocity Holding is ranked 7 out of 10, indicating fair profitability.
Growth is one of the most important factors in the valuation of a company. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Paylocity Holding is 27.3%, which ranks better than 82.56% of companies in the Software industry. The 3-year average EBITDA growth is 26.9%, which ranks better than 75.46% of companies in the Software industry.
Evaluating Profitability: ROIC vs WACC
Profitability can also be evaluated by comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Paylocity Holding's ROIC was 3.74, while its WACC came in at 8.41.
Conclusion
In summary, the stock of Paylocity Holding (PCTY, Financial) is believed to be significantly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 75.46% of companies in the Software industry. To learn more about Paylocity Holding stock, you can check out 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.
