Is Now The Time To Put Paylocity Holding (NASDAQ:PCTY) On Your Watchlist?

By
Simply Wall St
Published
January 15, 2021

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Paylocity Holding (NASDAQ:PCTY). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

Check out our latest analysis for Paylocity Holding

Paylocity Holding's Improving Profits

Over the last three years, Paylocity Holding has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Paylocity Holding has grown its trailing twelve month EPS from US$1.09 to US$1.17, in the last year. That amounts to a small improvement of 7.4%.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Not all of Paylocity Holding's revenue last year was revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Paylocity Holding maintained stable EBIT margins over the last year, all while growing revenue 15% to US$570m. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

NasdaqGS:PCTY Earnings and Revenue History January 15th 2021

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Paylocity Holding's forecast profits?

Are Paylocity Holding Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$10b company like Paylocity Holding. But we do take comfort from the fact that they are investors in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$3.0b. That equates to 29% of the company, making insiders powerful and aligned with other shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations over US$8.0b, like Paylocity Holding, the median CEO pay is around US$11m.

The Paylocity Holding CEO received US$9.1m in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Is Paylocity Holding Worth Keeping An Eye On?

One important encouraging feature of Paylocity Holding is that it is growing profits. Earnings growth might be the main game for Paylocity Holding, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. We should say that we've discovered 1 warning sign for Paylocity Holding that you should be aware of before investing here.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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