Watch Out: Barbarians At The Gate For Workday (WDAY)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Workday ( WDAY) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Workday as such a stock due to the following factors:

  • WDAY has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $154.1 million.
  • WDAY has traded 1.3 million shares today.
  • WDAY traded in a range 214.3% of the normal price range with a price range of $4.66.
  • WDAY traded above its daily resistance level (quality: 57 days, meaning that the stock is crossing a resistance level set by the last 57 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on WDAY:

Workday, Inc. provides enterprise cloud applications for global human resources and finance in the United States and internationally. It offers applications for customers to manage critical business functions that enable them to optimize their financial and human capital resources. Currently there are 11 analysts that rate Workday a buy, no analysts rate it a sell, and 12 rate it a hold.

The average volume for Workday has been 1.4 million shares per day over the past 30 days. Workday has a market cap of $8.6 billion and is part of the technology sector and computer software & services industry. Shares are up 3.3% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Workday as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income and feeble growth in its earnings per share.

Highlights from the ratings report include:
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 92.4% when compared to the same quarter one year ago, falling from -$35.98 million to -$69.22 million.
  • WORKDAY INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, WORKDAY INC reported poor results of -$1.00 versus -$0.45 in the prior year. This year, the market expects an improvement in earnings (-$0.54 versus -$1.00).
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Software industry and the overall market, WORKDAY INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Despite currently having a low debt-to-equity ratio of 0.43, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.93 is very high and demonstrates very strong liquidity.
  • Net operating cash flow has increased to -$9.01 million or 30.23% when compared to the same quarter last year. Despite an increase in cash flow, WORKDAY INC's cash flow growth rate is still lower than the industry average growth rate of 41.14%.

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