• If you are wondering whether Workday's current share price reflects its true worth, this article walks through the key numbers investors are watching.
• Workday recently closed at US$129.29, with returns of 4.4% decline over the past week, 6.2% decline over the last month, and 37.2% decline year to date, while the 1 year return sits at 48.9% decline.
• These moves have kept attention on how the market is currently pricing Workday, with recent coverage focusing on its role in enterprise software and how sentiment has shifted over time. Investors are weighing that context against the longer term picture, including the 31.8% decline over 3 years and 46.8% decline over 5 years.
• Right now, Workday has a valuation score of 2 out of 6. The rest of this article breaks down how that score is built using different valuation methods, then finishes with a framework that can help you interpret those methods in a more complete way.

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 projects a company’s future cash flows and then discounts those projections back to today’s dollars to estimate what the business might be worth right now.

For Workday, the model uses a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $2.68b. Analysts have supplied detailed forecasts for several years, and Simply Wall St extends those out further, with projected free cash flow of about $4.76b in 2031. Each of these future cash flows is discounted to reflect the time value of money, with ten year projections ranging from around $2.48b to $3.11b in discounted terms across the forecast window.

Pulling this together, the DCF model estimates an intrinsic value of about $270.16 per share for Workday. Against the recent share price of $129.29, this implies the stock is about 52.1% undervalued on this cash flow view.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Workday is undervalued by 52.1%. Track this in your watchlist or portfolio, or discover 58 more high quality undervalued stocks.

Approach 2: Workday Price vs Earnings

For profitable companies, the P/E ratio is a useful way to think about how much you are paying for each dollar of current earnings, which is why it is the preferred multiple here.

What counts as a "normal" P/E depends heavily on what the market expects for future growth and how risky those earnings appear. Higher expected growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk usually points to a lower, more conservative multiple.

Workday is currently trading on a P/E of 48.0x, compared with the Software industry average of about 28.3x and a peer average of 28.9x. Simply Wall St also calculates a proprietary "Fair Ratio" of 37.4x for Workday. This Fair Ratio is designed to be more tailored than a simple peer or industry comparison because it incorporates factors such as earnings growth characteristics, profit margins, market cap and company specific risks, all within the context of the Software industry.

Comparing the current P/E of 48.0x with the Fair Ratio of 37.4x suggests that, on this earnings based view, the stock is trading above the level implied by those fundamentals.

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 let you turn your view of Workday into a clear story that links assumptions about future revenue, earnings and margins to a forecast and then to a fair value, all inside Simply Wall St’s Community page where millions of investors share views. You can compare that fair value with the current price to decide whether you see Workday as closer to a more cautious case, with a fair value around US$181.31 or US$190.34, or a more optimistic case, closer to US$253.14 or even US$318.04. These numbers automatically refresh as new news or earnings arrive.

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.