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Paylocity Holding Corporation (PCTY)

Undervalued
TechnologySoftware - ApplicationUnited States

Fundamental

80

Price

$142.57

Market Cap

$7.62B

Part 1 · What the company is worth

Overview

Paylocity sells cloud software that runs a company's payroll, benefits enrollment, time tracking and other HR tasks from one system. Employers pay a subscription priced per employee per month, and the platform's mobile app targets a modern, often non-desk workforce — retail, healthcare, hospitality — not just office staff. Between withholding an employee's pay and remitting it to tax authorities and benefit providers, Paylocity briefly holds client funds and earns interest on that float.

How it makes money

Almost all revenue is recurring: clients pay per employee per pay cycle for access to the software, so revenue grows with a client's headcount as well as with new client wins. A smaller, separate line comes from interest earned on payroll funds held briefly before disbursement — a source that shrinks when short-term interest rates fall, independent of how the underlying software business performs.

Revenue by segment

Recurring and other revenue92.3%

Per-employee subscription fees for the HCM and payroll platform, plus small one-time implementation charges.

Interest income on client funds7.7%

Interest earned on payroll and tax funds held briefly between withholding and remittance, a byproduct of running payroll.

Competitive moat

Switching costs · Narrow

Once payroll history, tax filings and employee records live inside a platform, moving to a competitor means re-entering years of compliance-sensitive data and retraining staff, which discourages switching. But the HCM software market has several well-funded rivals offering similar functionality, so the advantage is real but not decisive.

What drives demand

Moderately cyclical

Revenue tracks the number of employees on clients' payrolls, so it grows when clients hire and shrinks when they lay off staff, making Paylocity sensitive to the broader labor market without being as exposed as a cyclical goods business. New client acquisition adds a layer of growth that partly offsets a softening job market.

Key risks

  • Crowded, well-funded competition — The company names ADP, Paycom, Paycor, Dayforce and Paychex among direct competitors, all offering comparable payroll and HR functionality, which limits pricing power.
  • Interest income depends on rates — A meaningful slice of revenue comes from interest on client funds; when central banks cut short-term rates, that revenue line falls even if the software business is healthy.
  • Sensitivity to employment levels — Because pricing is per employee, a broad slowdown in hiring or layoffs among existing clients directly reduces revenue without any client leaving the platform.
  • Handling sensitive payroll data — The platform stores compensation, banking and tax data for millions of employees; a security breach would carry both direct liability and reputational cost.

Customer concentration

Paylocity serves tens of thousands of small and mid-sized employers and does not disclose a concentration figure; the client base is broad by nature of the target market.

The case for

Buyers argue that the mobile-first design wins disproportionately with a non-desk, younger workforce that rivals built for office workers struggle to serve, and that the subscription model keeps growing as clients add headcount even without new sales.

The case against

Sellers fear that a crowded field of well-capitalized HCM vendors will compress pricing over time, and that a chunk of reported profitability rests on interest income that erodes automatically whenever rates fall.

Written by the editors, published on August 18, 2026

Direct competitors

Who this company fights with for the same customers

Compare

Generated on September 19, 2026 with claude-haiku-4-5 — shared with all users

P/E: 23.2Score: 78Market cap: $9.95B

Paycom sells a single-database cloud payroll and HR platform to the same US small and mid-sized employers Paylocity targets, and the two routinely bid against each other on the same deals.

P/E: 23.6Score: 68Market cap: $104.52B

ADP is the incumbent US payroll and HCM provider Paylocity most often displaces, competing for the same per-employee-per-month payroll and HR service revenue across the small and mid-market.

P/E: 19.5Score: 70Market cap: $36.16B

Paychex serves the same US small and mid-sized payroll and HR outsourcing market, and since absorbing Paycor in April 2025 it competes directly in Paylocity's core mid-market segment.

Dayforce, Inc.Not tracked

Dayforce, named by Paylocity in its own 10-K and now privately held by Thoma Bravo, sells a single cloud platform for payroll and workforce management to the same mid-sized and larger employers.

Ultimate Kronos Group (UKG Inc.)Not tracked

UKG, privately held, competes for the same HR, payroll and time-and-attendance budgets with UKG Ready, its product aimed squarely at the small and mid-sized employers Paylocity serves.

Rippling People Center, Inc.Not tracked

Rippling, a private US company, sells cloud payroll and HR to the same small and mid-sized employers and is one of the alternatives buyers most often shortlist next to Paylocity.

Balance Sheet & Liquidity

Revenue

$1.65B

Trailing 12 months (through 6/30/2026)

Net Income

$270M

Trailing 12 months (through 6/30/2026)

Free Cash Flow

$497M

Total Equity

$1.22B

Total Liabilities

$3.66B

Current Ratio

1.09

Interest Coverage

-

Debt/EBITDA

0.27

Earnings Per Share

Revenue & Net Income

Free Cash Flow

Income Breakdown

Historical statement

Margins over time

Debt over time

How heavy the debt is

Growth grid

Growth — Revenue

Fair Value Estimation

General caseUndervalued

Fair Value

$257.26

Current Price

$142.57

Margin of Safety

+44.6%

Fair Value Range

$167.22 - $347.30

Spread across the valuation methods used, not a statistically calibrated confidence interval.

Estimation Methods

Analyst price target:$172.00
Discounted cash flow (DCF):$611.69
Earnings multiple (P/E):$80.08
Graham growth formula:$253.28
Earnings power value (EPV):$70.54
Justified P/B:$87.29
Dividend discount (Gordon):Not enough data to compute it
P/FFO, funds from operations:$115.06
Mid-cycle earnings:$70.00
Revenue multiple:$167.33
Analyst Consensus:Strong Buy (22B / 5H / 0S)
Last Earnings Surprise:+11.69%

Valuation Metrics

P/E Ratio

28.98

ROE

22.1%

P/B Ratio

6.19

P/FCF

15.22

Gross Margin

74.2%

ROIC

20.8%

Profitability Radar

Value Creation (Economic Moat)

ROIC

20.8%

WACC

7.9%

ROIC − WACC

+13.0 pp

ROIC exceeds the cost of capital — the company is creating value for shareholders.

Fundamental Analysis Criteria

Passed (23)

  • EPS shows upward trend
  • EPS CAGR 48.18%
  • Price CAGR 16.95%
  • ROIC 20.8%
  • Gross Margin 74.2%
  • P/FCF 15.22
  • Debt/Equity ratio
  • Operating Margin 23.4%
  • Positive Free Cash Flow
  • CapEx intensity
  • Current Ratio
  • Debt/EBITDA
  • Return on Tangible Assets
  • Low reliance on intangibles
  • ROE 23.4%
  • Revenue Growth 5Y 22.8%
  • Analyst Consensus 81% Buy
  • Earnings Surprise avg 10.0%
  • PEG Ratio 0.90
  • Earnings Quality (OCF/NI) 1.98
  • Share Dilution -3.0%
  • Net Margin Trend 16.3% vs 15.4%
  • Piotroski F-Score 6/9

Failed (3)

  • P/B Ratio 6.19
  • Price below Graham Number
  • DCF valuation (Overvalued)

Unavailable (2)

  • Dividend Payout NaN%
  • Interest Coverage

Piotroski F-Score

6/9

Mixed signals: some areas need attention

score
criteria

Earnings Quality

1.98

High quality: earnings backed by cash

Share Dilution

-3.0%

Buying back shares. Shareholder friendly

Institutional Holdings

Governance

Executive Team

NameTitleAge
Mr. Steven R. BeauchampExecutive Chairman of the Board53
Mr. Toby J. Williams J.D.President, CEO & Director52
Mr. Steven I. SarowitzFounder & Director59
Mr. Ryan GlennChief Financial Officer43
Mr. Andrew J. CappotelliSenior Vice President of Operations54
Ms. Melissa KingSenior Vice President of Product & Technology50
Mr. Joshua ScuttSenior Vice President of Sales54
Mr. Nicholas RostVP, Chief Accounting Officer & Treasurer45
Ms. Amber LivingstonVP & General Counsel-
Mr. Adam ByerleyVice President of Strategy & Corporate Development-

Audit Risk

1

Board Risk

5

Compensation Risk

2

Shareholder Rights Risk

7

Part 2 · The price and when to enter

This part won't tell you whether the company is worth owning: it helps you choose when to buy it, once the fundamentals have convinced you. Inside: technical analysis, potential, historical drawdowns, gamma exposure.

Documents

  • Annual Report (10-K)

    A yearly overview of the business, its financial results, and the risks it faces.

    Filed on 2026-08-05

    View document
  • Quarterly Report (10-Q)

    A snapshot of financial performance for the most recent three-month period.

    Filed on 2026-05-08

    View document
  • Current Report (8-K)

    An announcement of a major event, such as a leadership change or big news.

    Filed on 2026-09-17

    View document

via SEC EDGAR

Income History

via SEC EDGAR

Latest News

Recent headlines for PCTY, sourced from Markets Gazette.

No recent news for PCTY.