• Wondering if Workday at around US$119 per share is a bargain or a value trap? This article breaks down what that price could really mean for you.
• The stock has seen a 7.7% decline over the last week, a 19.6% decline over the last month, and is down 42.1% year to date, with a 48.5% decline over the last year and a 54.1% decline over five years.
• Recent coverage around Workday has focused on how investors are reassessing software names more broadly, and what that might mean for longer term adoption of its products. That shift in sentiment is an important backdrop for understanding why the share price is where it is today.
• Workday currently has a valuation score of 2 out of 6. The next sections will walk through what different valuation approaches say about that score, then finish with a framework that can help you make sense of these numbers 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 DCF model takes projections of a company’s future cash flows and discounts them back to today, aiming to estimate what those future dollars are worth in present terms.

For Workday, the latest twelve month Free Cash Flow (FCF) is about $2.7b. Analysts and extrapolated estimates point to projected FCF of around $4.8b in 2031, with a detailed path between 2026 and 2035 based on both analyst inputs and Simply Wall St extrapolations. All figures are in $ and use a 2 Stage Free Cash Flow to Equity approach, which first values an explicit forecast period and then an extended phase using more gradual growth assumptions.

Putting those projected and discounted cash flows together gives an estimated intrinsic value of about $273.68 per share. Against a current share price around $119, this implies an intrinsic discount of roughly 56.5%, meaning the DCF model suggests the stock is significantly undervalued on these inputs.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Workday is undervalued by 56.5%. Track this in your watchlist or portfolio, or discover 64 more high quality undervalued stocks.

Approach 2: Workday Price vs Earnings

For a profitable company, the P/E ratio is a useful quick check because it links what you pay per share to the earnings that support that price. The higher the expected growth and the lower the perceived risk, the higher the P/E investors are usually willing to accept as “normal” for that stock.

Workday currently trades on a P/E of 44.20x. That sits above the Software industry average P/E of 28.53x and also above the peer group average of 30.33x. On those simple comparisons, the shares look expensive relative to many software names.

Simply Wall St’s Fair Ratio for Workday is 35.38x. This is a proprietary estimate of what a reasonable P/E could be, given factors such as the company’s earnings growth profile, its industry, profit margins, market cap and risk characteristics. This kind of tailored benchmark can be more informative than just lining the stock up against broad industry or peer averages, because it adjusts for company specific strengths and weaknesses. Comparing the Fair Ratio of 35.38x with the actual P/E of 44.20x suggests the shares are trading above what this framework would flag as a balanced level.

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. On Simply Wall St that shows up as Narratives, where you turn your view of Workday into a simple story that links assumptions about future revenue, earnings and margins to a forecast, a Fair Value, and finally a clear comparison with the current price. This lets you see whether your story points you toward buying, holding or selling, and then watch that view update automatically when fresh news or earnings arrive.

On the Workday Community page, for example, one Narrative assumes revenue growth of 15%, profit margins of 20%, a future P/E of 30x and arrives at a Fair Value of US$253.14. Another uses revenue growth of about 11.1%, profit margins of 15.4%, a future P/E of 26.36x and a Fair Value of about US$181.31. A more optimistic view goes further with revenue growth of 14.82%, profit margins of 18.66%, a future P/E of 39.81x and a Fair Value of US$318.04. This shows how different but clearly defined stories can sit side by side so you can decide which feels closest to your own expectations.

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.