• Wondering if Workday's stock price still reflects its true worth, or if recent moves have left it mispriced for what you are getting?
• Workday closed at US$128.88, with a 6.4% gain over the last 7 days, a 2.6% decline over 30 days and a much steeper 37.4% decline year to date and 48.0% decline over 1 year that may have shifted how investors see its risk and potential.
• Recent coverage has focused on Workday's position as a major software provider and how investor sentiment has adjusted after a period of weaker share price performance. The stock's long term returns over 3 years and 5 years, at 27.8% and 45.6% declines, remain under pressure. This backdrop has put more attention on whether the current price still lines up with the fundamentals.
• Against that context, Workday holds a valuation score of 2 out of 6. The rest of this article will unpack what that means across different valuation approaches before looking at a broader way to think about what "fair value" really is for this stock.

Workday scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Workday Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes estimates of a company's future cash flows and discounts them back to today to arrive at an estimate of what the business might be worth right now.

For Workday, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections. The latest twelve month free cash flow is about $2.68b. Analyst and extrapolated projections in the model run through to 2035, with forecast free cash flow for 2031 of $4.76b and discounted values for each year supplied within the model.

Combining all of those projected and discounted cash flows gives an estimated intrinsic value of about $274.65 per share. Compared with the recent share price of $128.88, the DCF output indicates a 53.1% discount, which suggests the stock may appear materially undervalued on this method alone.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Workday is undervalued by 53.1%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Approach 2: Workday Price vs Earnings

For profitable companies, the P/E ratio is a useful way to relate what you pay for each share to the earnings that support that price. Investors usually expect higher P/E ratios when a company has stronger growth prospects or lower perceived risk, and lower P/E ratios when growth expectations are more muted or risks are higher.

Workday currently trades on a P/E of 47.80x. That sits above both the Software industry average P/E of 30.41x and the peer average of 29.32x, which suggests the stock carries a higher earnings multiple than many comparable companies in its space.

Simply Wall St’s Fair Ratio for Workday is 35.99x. This is a proprietary estimate of what the P/E might be, given factors such as the company’s earnings growth profile, its industry, profit margins, market cap and key risks. Because it adjusts for these company specific inputs, it can give a more tailored reference point than a simple comparison with peers or broad industry averages.

Comparing the Fair Ratio of 35.99x with the current P/E of 47.80x indicates that Workday screens as overvalued on this multiple based framework.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Workday Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives take the story you believe about Workday, such as whether its AI investments and global expansion support a higher fair value closer to about $318.04 or a lower fair value nearer $179.22 or $190.34, link that story to specific revenue, earnings and margin assumptions, and then continuously compare the resulting fair value to the live share price inside Simply Wall St's Community page. This allows you to see in real time whether your chosen Narrative suggests the stock looks rich or cheap as new news and earnings are released.

Do you think there's more to the story for Workday? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.