Workday Stock: Strong Cash Flow Poised for a Re-Rating

Workday Stock: Strong Cash Flow Poised for a Re-Rating?

We think Workday (WDAY) stock is worth a look: It is growing, producing cash, and available at a significant valuation discount. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market.

The stock is available at a significant discount to its 3-month, 1-year, and 2-year highs.

WDAY Has Strong Fundamentals

• Cash Yield: Workday offers an impressive cash flow yield of 8.0%.
• Growing: Revenue growth of 13.1% over the last twelve months means that the cash pile is going to grow.
• Valuation Discount: WDAY stock is currently trading at 37% below its 3-month high, 52% below its 1-year high, and 53% below its 2-year high.

Below is a quick comparison of WDAY fundamentals with S&P medians.

*LTM: Last Twelve Months

But What About The Risk Involved?

While WDAY stock may be a compelling investment opportunity, it's always helpful to be aware of a stock's history of drawdown. Workday's stock took hits of 32% in the 2018 correction, 43% during the Covid crash, and a hefty 56% in the inflation shock. Even with strong fundamentals, these dips show how volatile it can get when the market turns. Quality matters, but significant sell-offs don't discriminate much. But the risk is not limited to major market crashes. Stocks fall even when markets are good - think events like earnings, business updates, and outlook changes. Read WDAY Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

If you want to see more details, read Buy or Sell WDAY Stock.

Other Stocks Like WDAY

Not ready to act on WDAY? You could consider these alternatives:

1. Qualcomm (QCOM)
2. AppLovin (APP)
3. Accenture (ACN)

These stocks have positive revenue growth, high free cash flow yield, and are trading at a meaningful discount to 3M, 1Y, and 2Y highs.

A portfolio that was built starting 12/31/2016 with stocks that fulfill the criteria above would have resulted in average 6-month and 12-month forward returns of 25.7% and 57.9% respectively, with win rate (percentage of picks returning positive) of above 70%.

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