PAYC - Paylocity: Gem In A Highly Competitive Industry

2024-04-08 08:32:41 ET

Summary

• PCTY’s growth has been impressive (CAGR: +30%), driven by a compelling offering and industry tailwinds that are accelerated by technological development.
• The company’s cloud-based subscription model has allowed for impressive margins (Adj. EBITDA: 31%), which we believe has further room to grow through scale and cost optimization.
• PCTY faces considerable competition but has shown a clear track record of outperformance, implying a compelling offering and GTM approach. We see this as a concern.
• When compared to its peers, the company outperforms on most key metrics, with an FCF margin of almost double the average.
• PCTY is not cheap but its valuation suggests upside we feel, with an FCF yield of ~3% and an NTM EBITDA multiple of 19x. For a growth business, this is reasonable.

Company description

Paylocity Holding ( PCTY ) Corporation is a leading provider of cloud-based payroll and human capital management ((HCM)) software solutions for small and medium-sized businesses (SMBs) in the United States. Founded in 1997 and headquartered in Schaumburg, Illinois, Paylocity offers a comprehensive suite of services to streamline HR processes, including payroll processing, benefits administration, talent management, and time tracking.

PCTY has developed a compelling suite of services during the last decade, contributing to considerable market share growth from directly related peers, many of which have a significantly larger footprint. Management has focused on broadening its TAM and appealing to businesses seeking an improved service, not just those looking to modernize their HCM capabilities....

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