Conestoga Capital Advisors Sold Paylocity Holding Corp. (PCTY) in Q1

Conestoga Capital Advisors, an asset management company, released its first-quarter 2026 investor letter. A copy of the letter is available to download here. The first quarter of 2026 started with optimism about the domestic economy and attractive small-cap valuations, but it was affected by volatility due to geopolitical unrest in the Middle East and shifting expectations regarding interest rates. This unrest drove up energy prices and created a cautious global market. Energy, Basic Materials, and Industrials performed well, while software companies faced challenges due to AI disruption concerns. Market sensitivity to geopolitical events, energy prices, and inflation remains high. The Conestoga Smid Cap Composite fell 10.24% net-of-fees, underperforming the Russell 2500 Growth Index’s -3.52% return. The decline was driven by negative stock selection and sector/industry-specific headwinds, notably within Technology, Industrials, and Health Care sectors. In addition, please check the Strategy’s top five holdings to know its best picks in 2026.

In its first-quarter 2026 investor letter, Conestoga Capital Advisors highlighted Paylocity Holding Corporation (NASDAQ:PCTY) as a newly added position. Headquartered in Schaumburg, Illinois, Paylocity Holding Corporation (NASDAQ:PCTY) is a software company that provides cloud-based human capital management and payroll software solutions. On May 5, 2026, Paylocity Holding Corporation (NASDAQ:PCTY) closed at $107.68 per share. One-month return of Paylocity Holding Corporation (NASDAQ:PCTY) was 5.14%, and its shares lost 41.35% over the past 52 weeks. Paylocity Holding Corporation (NASDAQ:PCTY) has a market capitalization of $5.86 billion.

Conestoga Capital Advisors stated the following regarding Paylocity Holding Corporation (NASDAQ:PCTY) in its Q1 2026 investor letter:

“Paylocity Holding Corporation (NASDAQ:PCTY) provides cloud-based human capital management and payroll software. We sold the position as growth has moderated and competitive dynamics within the HCM space have intensified. While the company continues to generate solid results, we believe the risk-reward has become less attractive given a more mature growth profile and increasing competition.”

Paylocity Holding Corporation (NASDAQ:PCTY) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 43 hedge fund portfolios held Paylocity Holding Corporation (NASDAQ:PCTY) at the end of the fourth quarter, compared to 44 in the previous quarter. While we acknowledge the potential of Paylocity Holding Corporation (NASDAQ:PCTY) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.