Piper Sandler’s Top Technical Stock Picks: 20 Best Stocks

11. Paylocity Holding Corporation (NASDAQ:PCTY)

Number of Hedge Fund Holders In Q2 2024: 36

Paylocity Holding Corporation (NASDAQ:PCTY) is a software as a service (SaaS) firm that provides organizational management products. Its software allows firms to manage their payroll, human resources, tax compliance, and other operations. The firm primarily serves small and medium businesses, which makes it unsurprising that the stock is down by 16% over the past 12 months as these organizations are the hardest hit by high interest rates. However, Paylocity Holding Corporation (NASDAQ:PCTY) is an upstart gaining market share and could see tailwinds once rates lower and the economy maintains growth. Additionally, the firm is focused on growth through acquisitions after it acquired spending firm Airbase in September. This creates risks and potential for Paylocity Holding Corporation (NASDAQ:PCTY). The firm’s free cash flow will drop as it funds the deal, but the affair is also expected to add $20 million to Paylocity Holding Corporation (NASDAQ:PCTY)’s run rate revenue. Crucially for the firm though, it is profitable and generated $208 million in net income in its four latest quarters. Yet, since Paylocity Holding Corporation (NASDAQ:PCTY) is focusing on profitability instead of growth, the stock might suffer if the acquisition costs add up.

Paylocity Holding Corporation (NASDAQ:PCTY)’s management shared details about its cost focus during the Q2 2024 earnings call:

“Yes. I think you’re trying to get at the same question of what does the growth model look like on a go-forward basis for this business. We’re at $1.4 billion in revenue, and we feel like we can continue to grow this business on a recurring revenue basis double-digits. I think that’s what we’re talking about doing. And at the same time, we can increase profitability. The size of the opportunity is big enough. As you mentioned, everybody has to get paid some way. So the payroll component of it is often displacement. We then try to add additional products beyond that. And so we feel like we’re approaching this with a growth priority, but a fairly balanced view on profitability going forward, and we think there’s still a really big TAM for us to attack.”