What happened
Shares of Paylocity (PCTY -0.18%) skyrocketed 100.7% in 2019, according to S&P Global Market Intelligence. The market-beating performance was driven by a decline in the U.S. unemployment rate from 3.9% to 3.5% between Dec. 31 2018, and Nov. 30, 2019, which supported demand growth for the company's payroll and human resources software and services.
So what
With over 20,000 midsize businesses using this growth stock's payroll, human capital management, time and labor, recruitment, benefit management, and communication tools, Paylocity has done a nice job positioning itself as a competitively priced, cloud-based alternative to larger players, including Paychex (PAYX 1.47%) and Automatic Data Processing (ADP 0.55%).
Over the past three fiscal years, the company has delivered compound annual revenue growth of 25%, and in 2019, it was more of the same for the company. In the fiscal year ended June 2019, revenue increased 26% year over year to $467.6 million and GAAP-accounting earnings per share improved 38% to $0.97. Top- and bottom-line strength carried over into fiscal Q1 too, with revenue gaining 26% to $126.7 million and GAAP EPS increasing 39% to $0.25. Currently, Paylocity's guiding for revenue to exceed $567 million this fiscal year, representing annual growth of at least 21% again this year.
About half of its new business came from winning away clients from competitors, but spending on new products it can cross-sell to existing customers also helped. Paylocity spent 31% more on R&D than the year before in fiscal Q1, and past spending is one reason the company's average employee per year revenue has increased to $400 from $260 since fiscal 2016.
Now what
Investors will want to keep tabs on future employment trends, because if the economy falters, demand for Paylocity's product suite could decline. Nevertheless, Paylocity is working with only about 3% of the 638,000 midsize companies in its target market, so there's plenty of room for additional sales and profit growth.