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Take a Break From Workday

Stocks in this article: WDAYIBMMSFTSAPORCLCRM

NEW YORK ( TheStreet) -- No matter how much a company is loved on Wall Street, there's no such thing as a perfect stock. But some companies do carry valuations priced for perfection. Software provider Workday (WDAY) certainly fits this description.

The company is growing rapidly. I also won't deny the impressive performance that produced 76% revenue growth in the November quarter. Even so, the current P/E ratio stands at a negative 66. Although the company has quickly risen ahead of IBM (IBM) and Microsoft (MSFT) as a cloud enterprise software power, I still don't see how these shares make any sense today.

[Read: Legal Pot Smuggled Out of Colorado and Washington]

In this case, the Street's insatiable appetite for growth trumps valuation logic. Investors seem completely on-board with management's plans to "disrupt" the enterprise software market. The company has been aggressively building its enterprise Software-as-a-Service (SaaS) capabilities, aimed at stealing share from the likes of IBM and SAP (SAP). Don't make the mistake, however, of underestimating a strong presence like Oracle (ORCL). The database giant is only one acquisition away from giving Workday a work-stoppage.

[Read: Why the Netflix, Comcast Agreement Is Such a Big Deal]

To that end, investors that are bidding up these shares to over $100 need to remember that it only takes one trip-up to send the stock down to more rational levels,  or at least something closer to fair market value, about 25% lower than where the stock is today by my estimation. With Workday due to report fourth-quarter earnings on Wednesday, investors currently on the sidelines waiting for a better entry point may finally get their wish.

The Street will be looking for a loss of 16 cents per share on revenue of $137.91 million, which would represent a year-over-year revenue increase of 69%. This is while the company is expected to post a flat loss. The other important metric will be how the company does with its billings, the metric that indicates the strength of future sales.

Billings have been up over the past couple of quarters (better than 30%) This has caused some to believe Workday is "running laps" around SAP and Oracle, which are criticized for running an antiquated business model based on contracts and bundled licenses.

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