Workday: Should You Buy the Dip?

The demand for Workday’s (WDAY) software is likely to pick up pace in the upcoming months as the second wave of coronavirus leads to more remote-work adoption. This could lead to substantial growth in earnings and revenue for the company. So, the recent price dip is a good buying opportunity.

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Author: Imon Ghosh


Workday, Inc. (WDAY) provides cloud-based financial management and human capital management services worldwide. It offers business planning and analytics solutions that enable customers to bring together various data with analytics tools and make business decisions.

Although WDAY’s sales slowed down during the pandemic, it picked up in the third quarter of fiscal 2021. The company witnessed an increase in software sales, suggesting that more businesses were buying the company’s accounting, financial-planning, and human resources products despite the uncertainty surrounding the economic conditions.

In this rapidly changing environment, as more organizations focus on digital solutions to stay afloat, WDAY is expected to witness significant gains from its increasing client base. The stock has gained 29.6% year-to-date. This impressive performance combined with several other factors has helped WDAY earn a “Buy” rating in our proprietary rating system.

Here’s how our proprietary POWR Ratings system evaluates WDAY:

Trade Grade: A

WDAY is currently trading lower than its 50-day moving average of $218.26, but higher than its 200-day moving average of $183.84, which doesn’t indicate a promising uptrend. Moreover, WDAY has gained 7.5% over the past three months, indicating some bullishness.

However, WDAY’s impressive financials in the last reported quarter reflect fundamental strength in the company. WDAY’s revenue increased 17.9% year-to-date to $1.11 billion in the fiscal third quarter ended October 2020. The increase in revenue was primarily attributable to growth in the subscription revenue. Operating cash flow grew 13.9% from the year-ago value to $293.80 million, while non-GAAP operating income rose 88% from the prior-year quarter to $268.10 million.

On October 29th, WDAY announced the availability of Workday Accounting Center and machine learning (ML) driven predictive forecasts for Workday Adaptive Planning to transform the way customers engage with data. These innovations will allow the company to provide its cloud planning and financial management solutions to a wide range of customers and thereby, accelerate its business growth.

Buy &Hold Grade: B

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, WDAY is well-positioned. The stock is currently trading just 13.6% below its 52-week high of $248.75, which it hit on August 28th.

The company’s net revenue grew at a CAGR of 27.7% over the past three years. This can be attributed to the growing demand for cloud services and AI solutions over the past couple of years.

Peer Grade: C

WDAY is currently ranked #27 out of 96 stocks in the Software – Application industry. Other popular stocks in this industry are Zendesk, Inc. (ZEN), ANSYS, Inc. (ANSS), and Oracle Corporation (ORCL).

While ZEN beat WDAY by gaining 68.3% year-to-date, ANSS and ORCL returned 24.4% and 8.7%, respectively, over this period.

Industry Rank: B

The Software – Application industry is ranked #27 out of the 123 industries. The companies in this industry design, manufacture, and support software that is used to fetch, store, and analyze data. The major factors driving the growth of this market is the enterprises’ need to support remote working. This should drive investment in IT infrastructure for cloud service providers (CSPs), internet service providers (ISPs), and managed to host providers in the near to mid-term.

Overall POWR Rating: B (Buy)

WDAY is rated “Buy” due to its impressive financials, long-term bullishness, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

WDAY is well-positioned to soar in the upcoming months despite gaining 29.6% year-to-date. As many countries are witnessing a “second wave,” the demand for cloud computing and AI services are expected to remain high since businesses have adopted videoconferencing and productivity tools to connect and help employees working from home. Hence, the stock is expected to soar based on its continued business growth, favorable earnings and revenue outlook, and strong financials.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is pretty impressive for WDAY. It has an average broker rating of 1.52, indicating favorable analyst sentiment. Out of 30 Wall Street analysts that rated the stock, 17 rated it a “Strong Buy”. The consensus EPS estimate of $2.69 for the current year indicates a 43.1% improvement year-over-year. Moreover, WDAY has an impressive earnings surprise history, with the company beating consensus EPS estimates in three out of the trailing four quarters. The consensus revenue estimate of $4.30 billion for the current year indicates an 18.6% increase from the same period last year. So, the stock offers an attractive entry point with the recent price decline.

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WDAY shares were trading at $217.41 per share on Friday morning, up $2.53 (+1.18%). Year-to-date, WDAY has gained 32.20%, versus a 14.71% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.


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