Why Paylocity (PCTY) Shares Are Trading Lower Today

Jabin Bastian /
2023/11/03 11:29 am EDT

What Happened:

Shares of payroll and human resources software provider, Paylocity (NASDAQ:PCTY) fell 6.87% in the morning session after the company reported third quarter results and provided revenue guidance for the next quarter that fell below Wall Street's expectations. The guidance also suggests a growth rate slightly below the 20% target they have previously set, which likely disappointed most investors. Management noted that while new business acquisitions remained solid, existing customer growth was below expectations, providing a headwind to the quarter and the fiscal year. On the other hand, revenue and EPS exceeded expectations during the quarter. Overall, it was a weaker quarter for the company with the outlook weighing heavily on shares.

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What is the market telling us:

Paylocity's shares are quite volatile and over the last year have had 15 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was six months ago, when the stock dropped 9.87% on the news that the company reported third-quarter revenue, gross margin, earnings per share, and free cash flow that exceeded analysts' expectations. Additionally, the revenue guidance for the full year was roughly inline with Consensus. Overall, it was a strong quarter for the company. However, the market was possibly expecting even better results from the company as the stock was down on the results. Another culprit could be fears around AI disrupting the business. In the press release announcing earnings, management highlighted AI Assist, "the HCM industry's first integration of generative AI built upon an with Open AI (the developer of ChatGPT)." The stock move may be signaling that the market views the new product as a defensive move rather than an offensive one.

Paylocity is down 24.1% since the beginning of the year, and at $146.75 per share it is trading 37% below its 52-week high of $232.89 from February 2023. Investors who bought $1,000 worth of Paylocity's shares 5 years ago would now be looking at an investment worth $2,360.

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