Sentiment toward HR software equities has turned more favorable in recent months, according to a research note from Citi, which identifies Paylocity (PCTY) as its top selection within the sector as companies head toward reporting season.
The bank's analysts observed a decline in short interest across HR software names, and noted that both Paycom and Paylocity have outperformed the IGV technology exchange-traded fund. Citi judged that sector fundamentals have generally stabilized, creating a more supportive environment for selected companies with the right catalysts.
Why Paylocity is the preferred name
Citi retained a Buy rating on Paylocity and described the company as its favored exposure in the HR software space. The analysts pointed to stronger web traffic metrics for Paylocity relative to its peers, which they interpret as a sign of improving business momentum. They also emphasized several growth levers available to the company's management team.
Particular focus was placed on Paylocity's recent investments in artificial intelligence and how those initiatives could influence the company's fiscal 2027 guidance. Citi stated that buy-side expectations for Paylocity have reset to a level the firm views as reasonable, positioning the stock positively ahead of the company's earnings release.
In Citi's view, Paylocity shows a clearer path to sustaining revenue growth when compared with competitors in the HR software cohort.
Comparative concerns at Paycom
By contrast, Citi flagged lingering execution challenges at Paycom, which informed its relative preference for Paylocity among investors seeking HR software exposure. The bank cited the confluence of an improving sentiment backdrop, company-specific catalysts, and stabilized fundamentals as factors supporting its bullish stance on Paylocity as the company approaches its earnings print.
Investors and market participants will be watching how the upcoming results and management commentary address AI-related investments, forward guidance for fiscal 2027, and any updates on execution across the peer group.
Market tickers referenced: PCTY, PAYC, IGV.