Evaluating Workday (WDAY) After A Steep Multi‑Month Share Price Decline

Workday’s recent performance in focus

Workday (WDAY) has drawn attention after a stretch of negative returns, with the stock down about 29% over the past month and 38% over the past 3 months, which has prompted closer scrutiny from investors.

See our latest analysis for Workday.

At a share price of US$133.15, Workday’s short term share price returns, including a 29.39% 30 day decline and 38.25% 90 day decline, contrast with its longer term total shareholder return of 48.90% decline over 1 year and 42.20% decline over 5 years. This indicates that momentum has recently faded as the market reassesses growth prospects and risk.

If Workday’s recent swings have you rethinking your watchlist, it could be a moment to broaden your search with our screener of 33 AI infrastructure stocks.

So with revenue of US$9.55b, net income of US$693m and the shares trading at US$133.15, is the recent sell off mispricing Workday’s future, or is the market already factoring in its growth outlook?

Most Popular Narrative: 47.4% Undervalued

Workday’s last close at $133.15 sits well below the narrative fair value of $253.14, which frames the current sell off in a very different light.

This narrative is brief and simply stands on the shoulders of the recent aggregate analysts review (Dec 2024). Put simply, if revenue grows at <15% pa and margins fall to <20% average over the next 3 years, that implies a pretty consistent growth rate that contradicts the high PE ratio for this stock. A reasonable investor is not going to pay 50+ PE (for 2% returns on current price) for a company with proven growth <15%. Further, with the risk factors in play especially AI, the discount rate used by any investor should be higher to justify the returns. Thus, even allowing for revenue growth at 15% and margins at 20%, with the discount rate holding at 7.08%, if PE acceptance falls to 30x then the indicated fair value is $253.14. That still implies higher future growth than would have been demonstrated for 5-7 years up to that point.

Read the complete narrative.

Curious how a lower earnings multiple still lands at a value almost twice today’s price? The tension between growth, margins and that discount rate is the core of this narrative. The full story hinges on how those pieces fit together across the next few years.

Result: Fair Value of $253.14 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, this hinges on revenue actually reaching that 15% pace and margins holding near 20%. Any AI related disruption or higher discount rate could quickly undermine the upside case.

Find out about the key risks to this Workday narrative.

Another view on valuation

The user narrative leans on growth, margins and a lower future P/E to argue Workday looks undervalued, yet our fair ratio work paints a tougher picture. At a P/E of 50.5x versus a fair ratio of 37.5x, the stock screens as expensive today.

That P/E also sits well above both the US Software industry average of 25.8x and the peer average of 32.4x. This suggests less room for error if growth or margins fall short. If the market drifts closer to that 37.5x fair ratio, how comfortable are you with the valuation risk you are taking on?

See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

If this mix of concerns and optimism feels familiar, do not wait to look through the numbers yourself and weigh both sides. Start with 3 key rewards and 1 important warning sign.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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