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While Paylocity Holding Corporation (NASDAQ:PCTY) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 20% in the last quarter. But over five years returns have been remarkably great. To be precise, the stock price is 304% higher than it was five years ago, a wonderful performance by any measure. So we don't think the recent decline in the share price means its story is a sad one. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Paylocity Holding
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During five years of share price growth, Paylocity Holding achieved compound earnings per share (EPS) growth of 53% per year. This EPS growth is higher than the 32% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. Of course, with a P/E ratio of 121.53, the market remains optimistic.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Paylocity Holding's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
Although it hurts that Paylocity Holding returned a loss of 7.6% in the last twelve months, the broader market was actually worse, returning a loss of 20%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 32% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. If you would like to research Paylocity Holding in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.