Workday stock has rebounded sharply in the past month, while valuation checks are mixed. An intrinsic value estimate from a Discounted Cash Flow (DCF) model points to upside, whereas market multiples suggest the shares are not cheap.

• The stock is up 47.1% over the past month, which puts recent price action well ahead of its returns over longer periods.
• Ongoing buyout talks with private equity firm Silver Lake and Workday's push into enterprise AI research can support optimism about future cash flows. However, any disruption to these plans or changing deal expectations may weigh heavily on what investors are willing to pay for the stock.
• Workday only passes 2 of 6 valuation checks on Simply Wall St's broader framework. This indicates that the stock leans expensive on several measures even though the DCF suggests it may be undervalued by 41.1%.

The issue now is whether investors should treat the recent rally and takeover interest as pricing Workday fairly or as leaving a margin between the current share price and the intrinsic value estimate.

Is Workday Still Cheap on Cash Flow?

The Discounted Cash Flow (DCF) method estimates what Workday is worth today based on the cash it can generate for shareholders in the future. Workday is currently generating trailing twelve month free cash flow of about $2.9b, and the model applies a growing cash flow profile over time using a 2 Stage Free Cash Flow to Equity approach.

On this basis, the DCF points to an estimated intrinsic value of about $338 per share, which implies the stock is 41.1% undervalued relative to the current price. Because the Silver Lake buyout talks show how a financial buyer might value Workday, the gap between the DCF estimate and the market price provides a useful reference point for assessing that potential deal premium.

Overall, the discounted cash flow analysis indicates that Workday stock currently appears undervalued relative to its projected cash generation.

Our Discounted Cash Flow (DCF) analysis suggests Workday is undervalued by 41.1%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.

Is Workday Getting Expensive on Earnings?

The P/E ratio is a useful cross check for Workday because earnings are a key focus for many software investors who want a quick read on what they are paying for each dollar of profit.

Workday currently trades on a P/E of about 58.1x. That is above both the Software industry average of 31.1x and the peer group average of 53.5x. The fair P/E ratio implied by Simply Wall St's model is 42.6x, which is lower than where the stock trades now.

This means the current share price embeds a premium to what the model would expect given Workday's growth profile, margins, size and risk, as well as a premium to broader software peers. The gap between the current multiple and the fair P/E indicates that investors are paying more for the stock on an earnings basis compared with these benchmarks.

On the P/E multiple, Workday stock currently appears overvalued relative to both its tailored fair ratio and sector peers.

The Workday Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for Workday pick up where this valuation puzzle leaves off. They spell out the specific paths for Workday's growth, margins and earnings that would need to unfold for the stock to be worth materially more or less than today's price, based on different viewpoints. Each narrative links its number to a clear view on how growth, profitability and risk might evolve, which you can revisit on the Community page as new information comes through.

Community views on Workday stock are split between a deep discount on intrinsic value and a tighter, earnings based reset.

Bull case: 64% undervalued

"The core thesis is simple, three independent data sources, contracted backlog, realized free cash flow, and forward guidance, all moved in the same direction this quarter..."

Bear case: 16% overvalued

"Rapidly evolving competition and regulatory complexity threaten Workday's pricing power, growth momentum, and profitability, while heavy investments may not yield corresponding efficiency improvements..."

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

The Bottom Line

For Workday, the Discounted Cash Flow (DCF) model points to meaningful upside, while the P/E based view shows the stock as overvalued relative to peers and its own tailored fair ratio. The split comes from what each lens prioritises. The intrinsic value estimate leans on future cash generation, funding needs and capital intensity, whereas the multiple view reflects current growth expectations, sentiment and where comparable software stocks trade.

Since broader checks are weak overall, the key question is whether Workday can deliver the cash flow path implied by the DCF without disappointing on growth or deal execution. That tension is what drives the current bull versus bear debate.

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.