Workday has its work cut out for it

Risk/Reward Rating: Negative

Workday, a leading software provider of enterprise cloud applications for finance and human resources, faces stiff competition as evidenced by a recent high-profile loss of Amazon business to Oracle. The competitive landscape was already becoming evident in Workday’s slowing sales growth. Sales for the current year (fiscal 2022 ending 1-31-22) are projected to grow 15%. This is in comparison to 19% growth in 2021 and 28% growth in 2020. The high-profile Amazon loss (Amazon remains a client) in addition to rapidly decelerating growth will make the upcoming Q2 2022 earnings report on Thursday, August 26 a key event for current and prospective shareholders.

Valuation and Heightened Risk

Of critical importance is that Workday has exited its hypergrowth phase, yet its current valuation multiple is consistent with that of a hypergrowth company. Decelerating growth combined with an elevated valuation creates heightened downside risk for the stock price should the earnings report and growth trajectory disappoint.