Paychex (PAYX) or Paylocity (PCTY): which stock wins?
2026-07-03 · By Lubin Danilo, founder of Lubin Investment
Paychex and Paylocity sell the same thing: payroll and HR software for American companies. Yet our screener does not grade them the same way. Paychex is more profitable, Paylocity grows faster and collects cash almost instantly. That one point gap between their scores is not cosmetic, it is measurable.
What to remember
- Paychex (score 9/10) and Paylocity (score 10/10) sell the same thing: payroll and HR software for American businesses.
- Paychex wins on profitability: a free cash flow margin of 30.8% and a Cash ROCE of 56.0%, versus 20.0% and 43.2% for Paylocity.
- Paylocity wins on growth and cash collection: revenue up 23.4% a year over five years versus 7.7% for Paychex, and only 2 days to collect customer payments versus 71 days at Paychex.
- On price, Paylocity trades at 17.6 times its free cash flow and shows up as an opportunity in our screener, while Paychex, around 19 times, still sits above my buy price.
- The one point gap between the two scores is not an abstract nuance: it reflects a real, measurable gap in growth and cash collection speed.
Same business, two very different scores
I already published a full standalone thesis on Paychex (PAYX) and another on Paylocity (PCTY). Both companies do exactly the same job: they run payroll, payroll taxes, benefits, and part of the HR function for American companies that would rather not do it themselves.
On my site, Paychex earns a quality score of 9 out of 10. Paylocity earns a 10 out of 10, the score with almost no reservation. A single point might sound negligible. It is not. This article puts the two head to head, line by line, to show you exactly what separates a very good business from a nearly flawless one under our grid.
Same job, two very different stories
Paychex has been around since 1971. Fifty years of growth, largely built through acquisitions: the company bought dozens of payroll, insurance, and benefits firms to build a sprawling offer, up to and including its PEO (professional employer organization) service, a setup where Paychex effectively becomes the administrative employer of record for its clients. It now serves more than 740,000 businesses, most of them very small.
Paylocity is much younger. Founded in 1997 as Ameripay, renamed in 2005, and taken public in 2014, it built a single system from day one, where payroll, time tracking, benefits, and talent tools share the same database. It targets a slightly bigger client than Paychex, roughly 50 to 1,000 employees, and counts around 42,000 clients. It does not offer a PEO product.
That gap in age and architecture explains a good part of what shows up in the numbers below.
How we judge quality, before even talking about price
On my site, every stock gets a quality score out of 10, built from ten objective financial criteria: profitability, revenue and profit growth, how fast a company turns sales into real usable cash, its debt load, how fast it collects what it is owed, and how it uses its capital (buybacks, dividends, reinvestment). That score says nothing about the share price: it only judges how solid the business is.
Paychex and Paylocity pass nearly all of these criteria. That is exactly why the comparison is interesting: the one point gap does not come from an obvious weakness, but from two precise details that carry real weight. To understand them, a few terms need defining.
P/FCF (price to free cash flow) measures the share price relative to free cash flow, the cash actually left in the company's account once every bill is paid. A P/FCF of 17 means you are paying seventeen years of that cash to buy the stock today. Lower is cheaper.
Cash ROCE (cash return on capital employed) measures how much cash a company generates for every dollar invested in its operations. The higher it is, the better the company turns what it owns into cash.
DSO, or days sales outstanding, measures how many days it takes a company to turn a sale into cash actually sitting in its bank account. The shorter that delay, the less risk the company carries on what it is owed, and the faster it can put its cash back to work.
Paychex versus Paylocity, number by number
Here is the full comparison, based on my scoring screener as of July 3, 2026.
| Metric | Paychex (PAYX) | Paylocity (PCTY) |
|---|---|---|
| Quality score | 9 / 10 | 10 / 10 |
| Valuation (P/FCF) | about 19 times | 17.60 times |
| Free cash flow margin | 30.8% | 20.0% |
| Cash ROCE (return on capital) | 56.0% | 43.2% |
| Net margin | 27.0% | 14.9% |
| Revenue growth (5 years) | 7.7% a year | 23.4% a year |
| Days sales outstanding (DSO) | 71 days | 2 days |
| Net debt / FCF | 1.78 | -0.63 (net cash) |
| Market cap | ≈ $37.3B | ≈ $6.1B |
| Screener status (July 3, 2026) | above buy price (threshold under $64.18) | opportunity |
Where Paychex wins: profitability and return on capital
On pure profitability, Paychex wins clearly. Its free cash flow margin of 30.8% dwarfs Paylocity's 20.0%: out of every 100 dollars of sales, Paychex turns almost 31 into usable cash, versus 20 for Paylocity. Its net margin, 27.0% versus 14.9%, tells the same story.
Cash ROCE points the same way: 56.0% at Paychex versus 43.2% at Paylocity. That is no accident. Paychex is a mature, scaled business that has largely finished building out its infrastructure and now keeps most of what it bills. Its higher margin PEO arm pulls the average up. It is the classic profile of a company that got more efficient as it got bigger.
Where Paylocity wins: growth and collection speed
On growth, there is no contest. Paylocity's revenue grew 23.4% a year on average over five years, versus 7.7% for Paychex. It is Paylocity's one clear, massive edge over its rival, but it is a big one: at that pace, Paylocity roughly doubles the size of its business every three years, while Paychex takes close to a decade to do the same. At Paychex, earnings per share growth follows the same moderate pattern, around 9.3% a year, a respectable rate but short of the 10% a year our grid looks for.
The other gap, quieter but just as telling, is how fast each company collects what it is owed. Paylocity collects its invoices in barely 2 days. Paychex takes 71 days, over two months. In practical terms, that means a meaningful chunk of the money Paychex has already billed sits with its clients before coming back into its account, cash that is not working and that exposes the company if a client pays late. That 71 day delay is flagged as insufficient in our grid: it is, quite concretely, the weak point that costs Paychex a full point.
The balance sheet follows the same logic. Paylocity carries negative net debt of -0.63 times its free cash flow, meaning it holds more cash than debt: it could pay off every dollar it owes with cash on hand and still have money left. Paychex, at 1.78, is still reasonable but noticeably more leveraged.
The price today: a bargain, and a business that can wait
Once quality is judged on its own, the only question left is price, the one I always ask last. Paylocity trades at 17.60 times its free cash flow. My screener currently flags it as an opportunity: the market is pricing it almost like an ordinary business, even though it carries a near perfect score and double digit growth.
Paychex trades more richly, around 19 times its free cash flow, and its current price still sits above my reasonable buy price, which I put below $64.18. In other words, Paychex is an excellent business, but I am not willing to pay today's price for it. That is not a judgment on its quality, only on what the market is asking me to pay for that quality right now.
With a market cap of about $37.3 billion, Paychex weighs more than six times as much as Paylocity, around $6.1 billion. It is another face of the same gap: an established giant facing a smaller, younger, more nimble challenger.
What a one point gap actually tells you
One point out of ten sounds trivial. But look at what it covers here: three times the growth rate, 69 fewer days to collect cash, a net cash position instead of a modest but real debt load. That is not a scoring nuance, it is a measurable gap between a mature company that optimized for profitability and a younger one that optimized for speed.
What stands out is that neither is a bad choice. Paychex remains a high quality business, with profitability and returns on capital that plenty of software companies would envy. Its weak spot, that 71 day collection delay, is real, but it does not erase the rest. Paylocity checks nearly every box: growth, cash, balance sheet. It is that combination, not a single number, that justifies the different score.
How I use this comparison
I did not build this grid to settle a fight between two good companies, but to answer a simpler question: do I understand, with numbers to back it up, why a company deserves my trust and at what price. Comparing Paychex and Paylocity line by line is exactly the kind of exercise that made me want to code my method for any stock, instead of redoing it by hand every time. You can test it yourself on any other stock.
FAQ
Why does Paychex score lower than Paylocity despite higher margins?
Because our score judges ten criteria, not one. Paychex wins clearly on free cash flow margin (30.8% versus 20.0%) and Cash ROCE (56.0% versus 43.2%), but its slower growth (7.7% a year versus 23.4%) and, above all, its 71 day customer collection delay weigh against it. Paylocity, younger, checks nearly every box at once.
What is days sales outstanding (DSO) and why does it matter?
It is the number of days it takes a company to turn an invoice into cash actually collected. The longer it is, the more cash a company leaves parked with its clients, and the more risk it carries if one of them pays late. Paychex takes 71 days, Paylocity only 2.
Paychex or Paylocity, which one is cheaper today?
On P/FCF, a ratio that compares the share price to the cash a company generates, Paylocity trades at 17.60 times its free cash flow versus around 19 times for Paychex. Our screener actually flags Paylocity as an opportunity as of July 3, 2026, while Paychex still sits above my buy price.
Does Paychex offer something Paylocity doesn't?
Yes, its PEO (professional employer organization) service, where Paychex becomes the administrative employer of record for its clients, an option built from its history and scale. Paylocity, younger and more focused on the mid market, does not offer that service.
Is a 9/10 score a bad result?
No. 9 out of 10 remains a high quality score, reserved for a minority of companies in our screener. Paychex has one clearly identified weak spot (customer collection), but the rest of its financial profile is solid. This article is not personalized investment advice, do your own research.
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About the author
Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).