Investor interest in Workday (WDAY) has picked up after the company highlighted Sana from Workday, its AI driven HR and finance platform, along with a new federal PAR Agent and fresh deployment partnerships.

The stock’s recent 1 day share price return of 6.73% and 7 day share price return of 6.93% come after a period of weaker momentum, with a 90 day share price return of 19.67% and a 1 year total shareholder return decline of 49.27%. The latest AI and government product news appears to be shifting sentiment toward a potential rebuild in confidence rather than a fully established uptrend.

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With Workday shares down on a 1 year total return basis, yet trading at a discount to some analyst targets and intrinsic estimates, the real question is whether this reset leaves room for upside or if markets already see future growth.

Most Popular Narrative: 48.3% Undervalued

Workday's last close of $130.88 sits well below a narrative fair value of $253.14, which frames the current reset as a valuation gap rather than a premium.

This narrative is brief and simply stands on the shoulders of the recent aggregate analysts review (Dec 2024). Put simply, if revenue grows at <15% pa and margins fall to <20% average over next 3 years, that implies a pretty consistent growth rate that contradicts the high PE ratio for this stock. A reasonable investor is not going to pay 50+ PE (for 2% returns on current price) for a company with proven growth <15%.

Curious how a modest growth outlook and a lower future earnings multiple can still justify a fair value far above today’s price? The tension sits in the narrative math around revenue, margins, and the accepted P/E a few years out, and it is all tied to a specific discount rate.

Result: Fair Value of $253.14 (UNDERVALUED)

However, this narrative could be knocked off course if AI adoption slows customer spending or if government and large enterprise buyers delay new Workday deployments.

Another Take: Price Ratios Flash A Different Signal

The user narrative focuses on earnings and a future P/E of 30x to argue that Workday looks undervalued at $130.88. On current numbers, however, the stock trades on a P/E of 47.2x, which is well above the Software industry at 27.5x, peers at 29.8x, and even above a fair ratio of 36x.

This gap suggests investors today are paying a premium for Workday relative to both its sector and the level indicated by the fair ratio. That raises a simple question: is this pricing in more good news than the narrative’s more cautious growth path allows for?

Next Steps

After weighing both the valuation gap and the rich current P/E, it can be helpful to move quickly and review the underlying data yourself before sentiment shifts. To see what is driving optimism and which rewards stand out most clearly, take a closer look at the 3 key rewards

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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.