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Should You Buy Paylocity Stock Despite its 7% Dip in 3 Months?

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Key Takeaways

  • Paylocity maintained client stability in Q3 despite macro pressures and high interest rates.
  • Expanded AI tools and integrations boosted average revenue per client and cross-sell potential.
  • Q3 revenues rose 13% to $454.6M, beating guidance and prompting an upward revision to the FY2025 outlook.

Paylocity Holding (PCTY - Free Report) shares have lost 6.8% in the trailing three months, underperforming the Zacks Computer and Technology sector, the S&P 500 index and the Zacks Internet - Software industry’s growth of 4.5%, 0.9% and 2.3%, respectively.

PCTY has also underperformed its industry peers, Automatic Data Processing (ADP - Free Report) , Workday (WDAY - Free Report) and Paycom Software (PAYC - Free Report) , in the same time frame. Shares of Automatic Data Processing and Paycom Software have gained 2.2% and 17.7%, respectively, while Workday has lost 2.7%.

Sluggish macroeconomic conditions and high interest rates have impacted Paylocity’s core customers, which are small and mid-sized businesses. This could affect the company’s top-line growth in the near term. The macro pressure may have weighed on investor sentiment, leading to the recent underperformance. However, Paylocity’s strong execution and expanding product offerings continue to support its momentum. Let’s look at why it remains a solid investment despite these challenges.

PCTY’s Client Base Remains Stable Despite Macro Pressures

Despite macroeconomic pressures and high interest rates affecting some businesses, Paylocity maintained stability in its client base during the third quarter of fiscal 2025. Workforce levels among clients were slightly up year over year, with expected seasonal hiring trends in April through June. Additionally, more than 25% of new business came through channel referrals, primarily from benefit brokers and financial advisers. This performance was supported by Paylocity’s continued investment in its broker partnerships and third-party integration capabilities.

PCTY’s Expanding Product Suite Drives Client Value

Paylocity’s ongoing product expansion, including AI-powered tools and third-party integrations, has contributed to growing average revenue per client. Recent launches include embedded background checks and skill assessments, and an AI assistant capable of answering policy and compliance questions using employee handbooks and public data. These features aim to improve user experience and efficiency. Additionally, the acquisition of Airbase, a spend management platform, which is now fully integrated, is expected to open up cross-selling opportunities and contribute to revenue growth.

PCTY Shows Strong Execution Across Sales and Operations

In the third quarter of fiscal 2025, Paylocity reported recurring and other revenues of $421.1 million, up 15% year over year. It exceeded the high end of the company’s guidance by $6.1 million. Total revenues reached $454.6 million, up 13.27% year over year. 

This strong performance was driven by effective sales execution during Paylocity’s peak season, which includes year-end processing and annual tax form filings in December and January. The company successfully onboarded new clients and met high seasonal demand with strong support from its implementation and service teams. As a result, Paylocity exceeded revenue expectations for the third consecutive quarter and raised its full-year guidance.

PCTY’s Promising Guidance for FY2025

For fiscal 2025, the company expects total revenues to be in the range of $1.58-$1.585 billion, which represents approximately 13% year-over-year growth. 

The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $1.58 billion, suggesting year-over-year growth of 12.88%, and the consensus mark for earnings is pegged at $7.01 per share, which has been revised upward by 5.41% over the past 30 days, indicating a year-over-year increase of 6.7%.

PCTY beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, with the average surprise being 15.4%.

Here’s Why You Should Buy PCTY Stock Now

Despite a cautious market environment, Paylocity has maintained a stable client base while continuing to grow average revenue per client through its expanding product suite. Strong execution across sales and operations has supported this momentum, enabling the company to raise its full-year fiscal 2025 guidance.

PCTY currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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