Workday (WDAY) is back in the spotlight after strong quarterly results, softer guidance, increased AI spending, and a leadership change, with co founder Aneel Bhusri returning as CEO following Carl Eschenbach’s resignation.

At a share price of US$147.18, Workday has seen a sharp reset recently, with a 90 day share price return of 33.09% decline and a 1 year total shareholder return of 42% decline. This suggests momentum has weakened even as earnings beats, AI spending plans, new HR partnerships, buybacks, and the CEO change keep the story firmly in focus.

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With Workday trading at US$147.18 after a steep pullback, with revenue and earnings growing, an intrinsic value estimate suggesting a discount, and analysts still setting higher price targets, you have to ask: is this a reset buying opportunity, or is the market already pricing in the next leg of growth?

Most Popular Narrative: 41.9% Undervalued

With Workday last closing at $147.18 against a narrative fair value of $253.14, the current market reset sits well below what this framework implies, according to Chester.

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 the 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%. Further, with the risk factors in play especially AI, the discount rate used by any investor should be higher to justify the returns. Thus, even allowing for revenue growth at 15% and margins at 20%, with the discount rate holding at 7.08%, if PE acceptance falls to 30x then the indicated fair value is $253.14. That still implies higher future growth than would have been demonstrated for 5-7 years up to that point.

Curious how a tighter growth outlook, firm margins, and a lower future earnings multiple can still point to a higher price than today, and what trade off sits at the core of that $253.14 fair value call?

Result: Fair Value of $253.14 (UNDERVALUED)

However, this hinges on Workday defending its P/E and growth narrative, with recent share price declines and higher AI related spend both capable of pressuring that fair value case.

Another View: High P/E Puts More Pressure On The Story

That user narrative leans on a fair value of $253.14, yet the current P/E of 54.3x is well above both the US Software industry at 26.6x and peers at 37.3x, and even above a fair ratio of 37.1x. If the market drifts toward that lower ratio, what does that mean for anyone buying at today’s price?

Next Steps

With sentiment mixed throughout this piece, it makes sense to move quickly, test the numbers for yourself, and weigh both sides of the story using 3 key rewards and 1 important warning sign.

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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.