Analyst Note| Brian Colello, CPA |
Narrow-moat Paylocity Holding reported impressive second-quarter results, beating FactSet consensus estimates both on a top- and bottom-line basis. As the headwinds brought on by the COVID-19 pandemic gradually moderate, Paylocity remains well-positioned to take advantage of the expected macroeconomic normalization. Like the previous quarter, 25% of the firm's new sales resulted from channel referrals. Paylocity's focus has been on businesses with between 10 and 1,000 employees. While these businesses were often the most impacted by pandemic-induced business slowdowns, we think that with a large target market of more than 1 million companies, Paylocity has a strong growth runway ahead. With the firm's impressive quarter, strong guidance, and a change in our view of the firm's long-term profitability and cost management, we are raising Paylocity's fair value estimate to $163 from $111 per share. With shares trading close to $213 per share, we would recommend investors wait for a pullback before committing capital to the name.