This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
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
TheStreet Open House

Take a Break From Workday

Stocks in this article: WDAY IBM MSFT SAP ORCL CRM

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 - Get Report) 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.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

Jim Cramer's protégé, 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
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, 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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

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

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
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!

Markets

DOW 17,416.85 +225.48 1.31%
S&P 500 2,021.25 +19.09 0.95%
NASDAQ 4,683.4070 +45.4130 0.98%

Partners Compare Online Brokers

Free Reports

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