Although primarily known as a provider of Human Resource Capital Management (HRCM) solutions, Workday (WDAY) has expanded its offerings in recent years to include finance and analytics, explains Hilary Kramer, growth stock expert and editor of Game Changers.

The enterprise cloud-based software company has over 8,000 employees worldwide. Its HRCM solutions are a suite of human capital management applications that allow organizations to manage the entire employee lifecycle from recruitment to retirement. They also enable HR teams to hire, onboard, pay and train employees.

Workday’s experience solutions help companies identify and respond to rapidly changing financial conditions, which includes shifting needs for talents and Diversity, Equity and Inclusion (DEI) needs. Also, by combing payroll with human resources, Workday software streamlines management functions and allows customers to avoid mistakes like overpayment.

Workday’s financial solutions enable CFOs to maintain accounting information, manage core financial processes (such as payables and receivables) and promote internal control. Workday also offers cloud spend management solutions, which give companies the tools necessary to streamline supplier selection and contracts, manage indirect spend, and build and execute sourcing events (i.e., proposal requests).

In analytics, Workday provides applications to surface insights to management in a simple-to-understand format, machine learning to boost efficiency and automation, and benchmarks to see how their performance stacks up against other companies.

The popularity of Workday’s software has been evident in the significant growth the company has achieved. Revenues increased from $2.1 billion in the January 2018 to $5.1 billion in the January 2022 fiscal year. Over the same period, EPS increased from $1.03 to $3.99.

The robust growth continued through the first quarter of the current fiscal year, with revenues up 22.1%. Subscription revenues, which accounted for 88% of total sales, were up 23.2%. EPS for the quarter declined to $0.83 from $0.87 as the company spent big on product development and marketing, as well as had higher interest expense due to new bond issuance.

Results were basically line with expectations, and Workday even slightly raised subscription revenue guidance for the entire year from $5.53 billion to $5.55 billion, or growth of 22%. However, the stock tumbled post earnings on a warning that a few deals are taking longer than anticipated to close, and results for the year will be more backended than originally thought.

However, I believe the market is overly concerned about slight variations in quarterly growth and not looking at the bigger picture at Workday. The company continues to grow at a brisk pace, and with many of the company’s customers still only buying one Workday product, management feels 20% subscription revenue growth is sustainable.

During the current bear market in tech, the prices of WDAY shares have been cut nearly in half in the past seven months, and the stock’s valuation now looks reasonable at 35X EPS estimates of $4.50 for the January 2024 fiscal year and 7.7x Enterprise Value (Value of stock plus debt) to revenues.

Overall, I believe there is too much pessimism is priced into the shares, and if the company reports reasonable results between now and year end, shareholders will be rewarded. Buy WDAY under $158. My target is $180.

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