Buy Workday (WDAY) Stock as a Cloud Software Bet?

Workday’s WDAY cloud software offerings focused on human resources and finance have become more popular in a world where businesses big and small rely heavily on software to do just about everything. The stock has climbed 40% in the past year and it rests about 8% off its late August highs heading into the release of its third quarter financial results on Thursday, November 19.

Software World…

Workday (NASDAQ:WDAY) is part of the ever-growing world of enterprise cloud applications and software that have proliferated throughout businesses of all sizes and industries. The world includes giants such as Salesforce (NYSE:CRM) CRM and pandemic high-flyers Zoom Video ZM. Companies have come to depend so heavily on various software to run their operations that there is no going back, which helps create a sustained revenue stream for many of the players in the space.

WDAY’s offerings include applications for financial management, human resources, planning, spend management, and analytics. In a constantly evolving world, Workday focuses on fundamental areas that are important to nearly every company and organization, and WDAY boasts that roughly 45% of the Fortune 500 and 60% of the Fortune 50 use some of its solutions.

The company topped our second quarter estimates, with revenue up 20% and subscription sales up 23%. WDAY also raised its full-year outlook and boosted its cash position. “It was a strong quarter despite the environment, with continued demand for our products as more organizations realize how mission critical cloud-based systems are in supporting their people and businesses through continuous change,” Co-CEO Aneel Bhusri said in prepared Q2 remarks.

What’s Next?

Moving on, Zacks estimates call for Workday’s adjusted third quarter earnings to climb over 26% to reach $0.67 per share on the back of 16% higher revenue. Meanwhile, its fiscal 2021 EPS figure is projected to jump 35% on 18% stronger sales that would see it pull in $4.27 billion. Peeking further ahead, WDAY’s FY22 earnings are expected to climb 17% above our current year estimate, with revenue set to surge 18% to higher to $5.02 billion.

Investors should note that these estimates would mark a relatively significant slowdown from last year’s 29% revenue growth, which came on top of FY19’s 32% top-line expansion. But clearly those on Wall Street understand growth becomes harder the bigger you get, and the nearby chart shows that WDAY shares have easily outpaced the broader tech sector in the last three years.

More recently, Workday stock has climbed roughly 40% in 2020 vs. the tech sector’s 31%. WDAY stock popped 1.3% during regular trading hours on Monday to close at $224.97 per share, or around 8% off its late August highs, which might set up a better buying opportunity. And the stock is currently trading right near its two-year median in term of forward 12-months sales at 10.8X.

Bottom Line

Workday is currently a Zacks Rank #3 (Hold) that grabs an “A” grade for Growth in our Style Scores system. The company has also crushed our earnings estimates in three out of the last four quarters and it is set to grow within an industry that will only become more important. It is also worth noting that the stock surged following its Q1 and Q2 releases.

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