Workday Stock: Strong Cash Flow Poised for a Re-Rating?
We think Workday (WDAY) stock is worth a look: It is growing, producing cash, and available at a significant valuation discount. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market.
What Is Happening With WDAY
WDAY stock is available at a significant discount to its 3-month, 1-year, and 2-year highs. This can be attributed to moderating fiscal 2027 subscription revenue guidance and perceived challenges to its per-seat licensing model from AI agent adoption and competitive intensity.
The stock may not reflect it yet, but here is what’s going well for the company: Workday saw 14.5% subscription revenue growth in fiscal 2026, serving over 11,500 global customers. Strategic AI innovations, with recent acquisitions and developer tools, drove over 1.7 billion AI actions in fiscal 2026. Operating cash flow rose 19.4% in fiscal 2026, backed by a $28.1 billion backlog and low 0.49 debt-to-equity. Though fiscal 2027 guidance implies 12-13% growth, AI focus and customer value could re-accelerate expansion.
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WDAY Has Strong Fundamentals
- Cash Yield: Workday offers an impressive cash flow yield of 8.2%.
- Growing: Revenue growth of 13.1% over the last twelve months means that the cash pile is going to grow.
- Valuation Discount: WDAY stock is currently trading at 41% below its 3-month high, 53% below its 1-year high, and 54% below its 2-year high.
Below is a quick comparison of WDAY fundamentals with S&P medians.
| WDAY | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Application Software | – |
| Free Cash Flow Yield | 8.2% | 4.3% |
| Revenue Growth LTM | 13.1% | 6.7% |
| Operating Margin LTM | 10.7% | 18.6% |
| PS Ratio | 3.5 | 3.1 |
| PE Ratio | 48.7 | 24.0 |
| Discount vs 3-Month High | -41.4% | -12.8% |
| Discount vs 1-Year High | -52.9% | -15.8% |
| Discount vs 2-Year High | -53.8% | -17.8% |
*LTM: Last Twelve Months
But What About The Risk Involved?
While WDAY stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. Workday’s stock took hits of 32% in the 2018 correction, 43% during the Covid crash, and a hefty 56% in the inflation shock. Even with strong fundamentals, these dips show how volatile it can get when the market turns. Quality matters, but significant sell-offs don’t discriminate much. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, and outlook changes. Read WDAY Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
If you want to see more details, read Buy or Sell WDAY Stock.
Other Stocks Like WDAY
Not ready to act on WDAY? You could consider these alternatives:
We chose these stocks using the following criteria:
- Greater than $2 Bil in market cap
- Positive revenue growth
- High free cash flow yield
- Meaningful discount to 3M, 1Y, and 2Y highs
A portfolio that was built starting 12/31/2016 with stocks that fulfill the criteria above would have performed as follows:
- Average 6-month and 12-month forward returns of 25.7% and 57.9% respectively
- Win rate (percentage of picks returning positive) of >70% for both 6-month and 12-month periods
Portfolios Are The Smarter Way To Invest
Individual stocks can soar or tank but one thing matters: staying invested. The right portfolio can help you stay invested, capture upside and mitigate the downside associated with any individual stock.
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? HQ Portfolio has posted more than 105% in cumulative return since inception, with less risk versus the benchmark index, as evident in HQ Portfolio performance metrics.