Paylocity (PCTY - Free Report) introduced W-4 Readiness Kit, which will enable clients to ensure compliance with the Internal Revenue Service's (IRS) new W-4, Employee's Withholding Certificate.
Management states that it will be a challenge for employers to comply with the new IRS standards like the newly-enforced Form W-4, effective Jan 1, without guidelines from a trusted payroll partner.
Reportedly, the W-4 Readiness Kit will help clients manage and execute the changes easily. The Kit will offer employers abundant resources while both payroll professionals and employees require to incorporate these changes to ensure a smooth compliance.
We therefore believe, the company’s efforts to enhance its product portfolio by bringing new offerings or adding better functionality to the existing ones will aid it to attract more clients.
Notably, shares of Paylocity have skyrocketed 109% in the past year, outperforming the industry’s rally of 12.8%.
What’s Driving the Stock?
Paylocity is benefiting from its robust product portfolio, which is allowing it to expand its clientele. Growing adoption of its HCM solutions among clients is a key driver. Moreover, a healthy momentum in the company’s core and upper end of the market is a tailwind.
Notably, as of fiscal 2019, the company provided nearly 20,200 clients across the United States, with its payroll and HCM software solutions, which on average, had more than 100 employees.
Further, the release of Learning Management System, which garnered a positive feedback from clients, is encouraging. The launch of the company’s employee-focused social communication platform, Community, designed for clients to strengthen employee connection, engagement and productivity, is also a positive.
Rising uptake of the company’s new product menu is reflected in client additions while an increase in average revenue per client is boosting recurring revenues.
For the last few quarters, clients shifting from traditional payroll service providers to the company’s SaaS-based services are contributing significantly to its revenue stream.
Competition: A Concern
Growing competition in the sub-50 employee market is a major downside for the company. Notably, Automatic Data Processing (ADP - Free Report) and Paychex (PAYX - Free Report) dominate this section of the market.
Further, rivalry from a number of smaller, independent payroll providers is making the space more competitive.
However, we believe that the company’s focus on product development will assist it to deepen its foothold in the marketplace with its product suite being a key differentiator.
Zacks Rank and Key Pick
Currently, Paylocity has a Zacks Rank #3 (Hold). A better-ranked stock in the broader technology sector is Baidu (BIDU - Free Report) , flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Baidu’s long-term earnings growth rate is currently pegged at 2.3%.
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