Is Workday’s Post Slide Valuation Attractive Amid Its Latest AI Expansion Push?

• Wondering if Workday is starting to look like a bargain after a rough patch in the market, or if the dip is just a value trap in disguise?
• The stock is down about 2.8% over the last week, 6.4% over the past month, and roughly 14.2% year to date, extending a 22.3% slide over the last year despite still being up around 25.6% over 3 years.
• Recently, headlines have focused on Workday's strategic push deeper into AI driven analytics and automation across its HR and finance platforms, as well as new large enterprise wins that reinforce its position in cloud based back office software. Together, these developments help explain why some investors see long term growth potential even as the market has become more cautious in the short term.
• On our scorecard, Workday earns a valuation score of 3/6, meaning it screens as undervalued on half of our key checks, enough to warrant a closer look at how different valuation methods stack up, and whether there is an even smarter way to think about fair value that we will get to by the end of this article.

Find out why Workday's -22.3% return over the last year is lagging behind its peers.

Approach 1: Workday Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates what a business is worth today by projecting its future cash flows and discounting them back to the present. For Workday, the model uses a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in $.

Workday generated trailing twelve month free cash flow of about $2.5 billion, and analysts plus extrapolated estimates see this rising to around $5.0 billion by 2030. Over the next decade, projected annual free cash flows climb steadily, with discounted values for key years like 2026 and 2030 still in the multi billion dollar range. This reflects expectations of healthy, if moderating, growth as the business matures.

Rolling all of those discounted cash flows together gives an estimated intrinsic value of roughly $348.28 per share. Compared with the current market price, the DCF output implies the shares are about 37.9% undervalued. This suggests investors are not fully pricing in Workday's long term cash generation potential.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Workday is undervalued by 37.9%. Track this in your watchlist or portfolio, or discover 909 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Workday.

Approach 2: Workday Price vs Earnings

For profitable software companies like Workday, the price to earnings ratio is a useful shorthand for how much investors are willing to pay today for each dollar of current earnings. A higher PE can be justified when markets expect faster, more durable growth or see the business as lower risk. By contrast, slower growth, cyclicality or higher uncertainty usually call for a lower, more conservative multiple.

Workday currently trades at about 88.5x earnings, well above both the broader Software industry average of roughly 32.4x and a peer group average near 54.4x. On the surface, that kind of premium suggests the market is baking in very strong growth and resilience. However, Simply Wall St goes a step further with its proprietary Fair Ratio, which estimates what a more appropriate PE should be. In this case it is around 48.4x, after factoring in Workday's earnings growth profile, profitability, size, industry and risk characteristics.

Because the Fair Ratio adjusts for these fundamentals, it offers a more tailored yardstick than blunt peer or sector comparisons. Against that lens, Workday's current 88.5x multiple sits well above the 48.4x Fair Ratio, indicating the shares look stretched on an earnings based view.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1457 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Workday Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives, a simple way to connect the story you believe about Workday with a concrete forecast for its revenue, earnings, margins and ultimately a Fair Value that you can compare to today’s share price.

On Simply Wall St’s Community page, millions of investors build Narratives by spelling out why they think Workday’s AI adoption, global expansion and margin trajectory will play out in a certain way, then linking that story directly to numbers that drive an estimate of what the stock is really worth.

Because each Narrative translates a thesis into a living financial model that is updated when new information such as earnings, guidance or major product news lands, it gives you a dynamic, easy to understand signal for when Workday looks buyable, hold worthy or stretched. It also makes it simple to see how the most bullish investors arriving near the high analyst targets around $340 can disagree with more cautious investors closer to the low $220 range while still working from the same underlying data.

Do you think there's more to the story for Workday? Head over to our Community to see what others are saying!

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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