Buy or Sell Workday Stock?

Workday (WDAY) stock has fallen 7.9% during the past day, and is currently trading at $215.34. We believe there are only a couple of things to fear in WDAY stock given its overall Strong operating performance and financial condition. This is aligned with the stock’s High valuation because of which we think it is Fairly Priced.

Below is our assessment:

Don’t get too attached to WDAY stock, even if you love it. Stocks crash. High Quality Portfolio lets you navigate that risk.

Let’s get into details of each of the assessed factors but before that, for quick background: With $57 Bil in market cap, Workday provides enterprise cloud applications and cloud spend management solutions to streamline planning, execution, analysis, supplier selection, contract management, and sourcing events globally.

[1] Valuation Looks High

This table highlights how WDAY is valued vs broader market. For more details see: WDAY Valuation Ratios

[2] Growth Is Strong

• Workday has seen its top line grow at an average rate of 16.5% over the last 3 years
• Its revenues have grown 14% from $7.9 Bil to $9.0 Bil in the last 12 months
• Also, its quarterly revenues grew 12.6% to $2.3 Bil in the most recent quarter from $2.1 Bil a year ago.

This table highlights how WDAY is growing vs broader market. For more details see: WDAY Revenue Comparison

[3] Profitability Appears Moderate

• WDAY last 12 month operating income was $778 Mil representing operating margin of 8.7%
• With cash flow margin of 28.9%, it generated nearly $2.6 Bil in operating cash flow over this period
• For the same period, WDAY generated nearly $583 Mil in net income, suggesting net margin of about 6.5%

This table highlights how WDAY profitability vs broader market. For more details see: WDAY Operating Income Comparison

[4] Financial Stability Looks Very Strong

• WDAY Debt was $3.8 Bil at the end of the most recent quarter, while its current Market Cap is $57 Bil. This implies Debt-to-Equity Ratio of 6.6%
• WDAY Cash (including cash equivalents) makes up $8.2 Bil of $18 Bil in total Assets. This yields a Cash-to-Assets Ratio of 45.6%

[5] Downturn Resilience Is Weak

WDAY has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• WDAY stock fell 55.9% from a high of $300.90 on 17 November 2021 to $132.63 on 4 November 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 9 February 2024
• Since then, the stock increased to a high of $307.21 on 26 February 2024 , and currently trades at $215.34

 
2020 Covid Pandemic

• WDAY stock fell 42.9% from a high of $199.38 on 18 February 2020 to $113.87 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 26 August 2020

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read WDAY Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.