On Friday, Wolfe Research adjusted its price target for Workiva (NYSE:WK), a cloud-based software provider, to $100 from a previous $110 while maintaining an Outperform rating on the company's shares.
The revision reflects a valuation based on a sum-of-the-parts analysis, which considers a ~7x CY25 enterprise value to sales (EV/S) multiple on subscription revenue, aligning with middleweight growth (MWG) peers, and ~1x CY25 EV/S on the professional services business.
The firm's analyst noted that Workiva's stock is currently trading at 5.5x CY25 EV/S, which is below its three-year historical average FY+2 EV/S multiple of 8.1x. In comparison to the Middleweight Growth comparison group, Workiva's shares are trading at a 23% discount.
The rationale for the new price target is supported by Workiva's strong customer base, limited competition, and an expanding total addressable market (TAM) that could enhance the company's leadership, drive sustainable growth, and improve margins.
Wolfe Research highlighted several potential catalysts that could positively impact Workiva's performance. These include favorable global regulatory decisions related to environmental, social, and governance (ESG) reporting, which may lead to higher ESG solution attach rates, a significant increase or resurgence in capital markets activities including initial public offerings (IPOs), and consistently robust earnings reports featuring accelerated revenue growth and/or margin expansion.
The analyst reiterated the Outperform rating, expressing confidence in Workiva's ability to capitalize on these opportunities. The endorsement is based on Workiva's sticky customer base, the fragmented nature of its competition, and the potential for the company to extend its market leadership, which is anticipated to result in enduring growth and rapidly expanding margins.
InvestingPro Insights
As investors consider Workiva's (NYSE:WK) potential, current InvestingPro data and tips provide additional context. The company's impressive gross profit margin stands at 76.01% for the last twelve months as of Q1 2024, highlighting its ability to manage costs effectively relative to revenue. Despite analysts revising their earnings downwards for the upcoming period, the company is trading near its 52-week low, which could indicate a buying opportunity for those who believe in the company's fundamentals and long-term prospects.
Workiva's solid financial footing is underscored by the fact that its liquid assets exceed short-term obligations, which suggests a strong liquidity position. However, it's worth noting that the company has not been profitable over the last twelve months, with a P/E ratio of -33.65. Despite this, analysts predict the company will turn profitable this year, providing a potential upside for investors.
For those looking for more in-depth analysis, there are additional InvestingPro Tips available on Workiva, which could offer further insights into the company's performance and outlook. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover why Workiva's high return over the last decade and moderate level of debt could be relevant for your investment decisions.
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