This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Workday Needs a Day Off

Stocks in this article: WDAY CRM ORCL IBM N SAP

NEW YORK ( TheStreet) -- When a tech investor has made up his or her mind, it's like pulling teeth to explain that "valuation" does eventually matter.

I accept the fact that Wall Street has an insatiable appetite for growth. That appetite, though, is only matched by the Street's strong willingness to blame someone else when expectations fall short.

I won't deny that Workday (WDAY) has built itself into a solid Software-as-a-Service (SaaS) company. I'm not willing to ignore how expensive the stock is. This is the same issue I've raised with rival (CRM).

The Street, meanwhile, has shown no reservations about placing enormous bets on companies it thinks can produce the sorts of returns that justifies the premium. But it doesn't always manifest itself into results. With strong rivals including IBM (IBM), SAP (SAP) and Oracle (ORCL) showing no meaningful signs of slowing down, I worry Workday investors may be bidding up these shares without fully appreciating the havoc that one slip may cause.

To that end, I believe the software company's price-to-earnings ratio of negative 50.32, ( according to Nasdaq), puts Workday in laborious territory, even though the company has delivered some pretty solid results. More than anything, that's all Workday bulls want to discuss.

Look, with revenue soaring 72% year over year in the recent quarter, I don't believe anyone is denouncing the company's performance, especially since the company beat estimates by roughly 7%.

My issue is with the "risk versus reward" scenario. Absent in all of the Workday euphoria are the realities that competition can throw a wrench into those expectations and send shares spiraling back down to what I believe are true fundamental levels. Yes, I appreciate that deferred revenue shot up 32%. It was also encouraging that "billings," which is the metric that indicates the strength of future sales advanced 36%.

But again, is this not the level of performance for which the Street has been paying? When you're willing to pay a high valuation for strong growth, you shouldn't' be surprised when you get it. But I wouldn't get carried away just yet. As is often the case, competitive threats can sometimes be delayed. What's more, with virtually no earnings to speak of, what's to get excited about? The strong growth is only as impressive as what trickles to the bottom line.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs