Workday’s recent share performance has raised questions about whether its current stock price accurately reflects its true value. The company’s shares closed at $143.09, marking a significant downward trend with a 6.6% decline over the past week, a 23.4% drop in the last month, and a staggering 46.2% decrease over the past year. Year-to-date figures show a 30.5% decline, while over three and five years, the stock has seen declines of 21.3% and 45.3%, respectively.
Despite these setbacks, interest in cloud-based software solutions like Workday remains high, influenced by evolving corporate IT budgets and competition within the enterprise software realm. This ongoing attention keeps Workday on investors’ radars, illustrating the potential for recovery even as the stock price has declined.
According to a valuation assessment, Workday currently holds a score indicating it is undervalued based on two out of six metrics employed. A deep dive into its valuation reveals important insights through two distinct approaches.
The first approach utilizes a Discounted Cash Flow (DCF) model, which projects the future cash flows of a business and discounts them to present value. Workday’s latest twelve months of free cash flow stands at roughly $2.51 billion, with projections suggesting it may reach around $5.30 billion by 2031. This analysis concludes that the intrinsic value of Workday’s shares could be about $316.79, implying that the stock is approximately 54.8% undervalued compared to its current market price.
In contrast, examining the Price-to-Earnings (P/E) ratio indicates a different narrative. Workday’s current P/E stands at 58.62, significantly higher than the software industry average of 26.36 and above its peers’ average of 32.50. This suggests that, when taken together, Workday may be considered overvalued on this metric, particularly when juxtaposed against a fair P/E ratio of 40.69 derived from a more tailored analysis.
Further insight into value assessment is provided through the concept of Narratives. These allow investors to create a personalized valuation story for Workday, combining forecasts about future revenue growth, profit margins, and risk assessments into a coherent framework. For example, should one expect a revenue growth rate of 15% and a future P/E of 30x with a discount rate of 7.08%, a fair value of approximately $253.14 emerges. This variability showcases that different investment expectations and assumptions can lead to varied portraits of the company’s future.
As the market evolves, keeping a watchful eye on Workday’s financial health and market positioning will be essential. There remains hope that with favorable growth trends in revenue and a competitive edge in cloud software solutions, Workday could turn its stock performance around, even amidst current challenges.