PAYLOCITY HOLDING CORP (NASDAQ:PCTY) is a cloud-based HR and payroll software provider that was identified by an affordable growth screen, a methodology that seeks companies combining solid earnings and revenue expansion with reasonable valuations. The approach prioritizes stocks that demonstrate consistent growth but are not priced at extreme multiples, making them potentially suitable for investors who want exposure to growth without paying speculative premiums.
Why Paylocity Qualifies as an Affordable Growth Stock
The affordable growth screen evaluates several core dimensions: growth, valuation, profitability, and financial health. Paylocity scores well in the areas that matter most for this strategy, particularly growth and valuation.
Growth highlights from the fundamental report:
- Earnings per share grew 13.54% in the last year, with a three-year average of 30.84% per year.
- Revenue increased 11.31% over the past year, with a three-year average of 23.23% per year.
- Forward EPS growth is estimated at 16.32% annually, while forward revenue growth is forecast at 8.86% per year.
Valuation metrics show the stock is not overpriced relative to its growth:
- The trailing P/E ratio of 17.23 is below the industry median of 21.29 and the S&P 500 average of 26.21.
- The forward P/E of 15.62 is also below the S&P 500 forward multiple of 21.41.
- The PEG ratio (price/earnings to growth) indicates reasonable compensation for the expected growth rate.
Although the valuation rating from the report is a moderate 5 out of 10, the combination of a below-industry P/E and strong past and future growth makes Paylocity a candidate for the “growth at a reasonable price” category. Investors can review the full fundamental breakdown on the fundamental analysis page.
Profitability and Health: Supporting Pillars
A key part of the affordable growth screen is ensuring that growth is backed by solid profitability and financial health. Paylocity earns a profitability rating of 9 out of 10, reflecting metrics that stand out in the Professional Services industry:
- Return on Invested Capital (ROIC) of 19.37% outperforms 89.66% of industry peers.
- Operating margin of 21.29% and gross margin of 69.30% are both in the top quartile.
- Profit margin of 14.94% also ranks well above average.
The health rating is a more modest 5 out of 10. While the company has a low debt-to-equity ratio of 0.07 and a debt-to-free-cash-flow ratio of 0.19 (indicating it could repay all debt in under three months of free cash flow), the Altman-Z score of 1.94 places it in the grey zone. Additionally, the current ratio of 1.08 is below the industry median, suggesting some near-term liquidity tightness.
Limitations to Consider
Prospective investors should weigh the decelerating growth trend: while past revenue and EPS growth were very strong, forward estimates show a slowdown. The health score is also not a standout, which means the company carries more financial risk than peers with pristine balance sheets. Nonetheless, the core combination of strong profitability, reasonable valuation, and still-solid growth keeps Paylocity within the affordable growth framework.
Screening for More Opportunities
Investors who find the affordable growth approach appealing can explore other stocks that meet similar criteria. The screen used to identify Paylocity filters for companies with good growth, decent profitability and health, and reasonable valuations. To see a full list of candidates, visit the affordable growth stock screener.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
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Paylocity (NASDAQ:PCTY) Presents Affordable Growth Potential with Strong Fundamentals
PAYLOCITY HOLDING CORP (NASDAQ:PCTY) is a cloud-based HR and payroll software provider that was identified by an affordable growth screen, a methodology that seeks companies combining solid earnings and revenue expansion with reasonable valuations. The approach prioritizes stocks that demonstrate consistent growth but are not priced at extreme multiples, making them potentially suitable for investors who want exposure to growth without paying speculative premiums.
Why Paylocity Qualifies as an Affordable Growth Stock
The affordable growth screen evaluates several core dimensions: growth, valuation, profitability, and financial health. Paylocity scores well in the areas that matter most for this strategy, particularly growth and valuation.
Growth highlights from the fundamental report:
Valuation metrics show the stock is not overpriced relative to its growth:
Although the valuation rating from the report is a moderate 5 out of 10, the combination of a below-industry P/E and strong past and future growth makes Paylocity a candidate for the “growth at a reasonable price” category. Investors can review the full fundamental breakdown on the fundamental analysis page.
Profitability and Health: Supporting Pillars
A key part of the affordable growth screen is ensuring that growth is backed by solid profitability and financial health. Paylocity earns a profitability rating of 9 out of 10, reflecting metrics that stand out in the Professional Services industry:
The health rating is a more modest 5 out of 10. While the company has a low debt-to-equity ratio of 0.07 and a debt-to-free-cash-flow ratio of 0.19 (indicating it could repay all debt in under three months of free cash flow), the Altman-Z score of 1.94 places it in the grey zone. Additionally, the current ratio of 1.08 is below the industry median, suggesting some near-term liquidity tightness.
Limitations to Consider
Prospective investors should weigh the decelerating growth trend: while past revenue and EPS growth were very strong, forward estimates show a slowdown. The health score is also not a standout, which means the company carries more financial risk than peers with pristine balance sheets. Nonetheless, the core combination of strong profitability, reasonable valuation, and still-solid growth keeps Paylocity within the affordable growth framework.
Screening for More Opportunities
Investors who find the affordable growth approach appealing can explore other stocks that meet similar criteria. The screen used to identify Paylocity filters for companies with good growth, decent profitability and health, and reasonable valuations. To see a full list of candidates, visit the affordable growth stock screener.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
Read full article here »