This Day On The Street
Continue to site
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

High-Flying Workday Comes Back to Earth

Investors can look past GAAP losses if they are seeing cash flow and very strong top-line revenue growth. It's the revenue growth that makes investors excited. It shows the product is really selling itself to new customers.

Therefore, over the past couple of years, these SaaS companies' stock price trajectories have been remarkably straight up. There hasn't been a lot of volatility until a month ago.

Workday and another high-flier, Splunk (SPLK), went public with price-to-sales ratios around 11x. To a lot of industries, that multiple looks stretched. However, SaaS companies' revenue are so predictable and resilient that investors looked past this. At the highs at the end of February, Workday got to a price-to-sales ratio of 30x and Splunk got up to the high 20x level.

But the momentum ended. Workday got sold off 30% in this five-week pullback. Splunk was even worse, down 40% from the highs earlier this year.

Were these pullbacks deserved? Yes, at such stretch valuation levels. Are they a good buy now? They're bouncing today but I don't think they have the all-clear by any means. Decreased valuations still look pretty stretched here, despite the relative security of their future revenues.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr 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

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
SYM TRADE IT LAST %CHG
WDAY $92.18 0.00%
AAPL $132.54 0.00%
FB $80.54 0.00%
GOOG $540.11 0.00%
TSLA $247.73 0.00%

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs