Workday (WDAY) Stock Drops as Valuation Comes Under Scrutiny

Shares in Workday (WDAY) slumped 3% today on fears that its growth might stall as economic uncertainty rises.

Five-star TipRanks-rated analyst Keith Weiss of Morgan Stanley cut his price target on Workday stock from $330 to $275 and downgraded it to a Hold rating citing slowing enterprise software demand. Weiss said that Workday’s recent go-to-market investments had not meaningfully accelerated growth with subscription revenue expectations declining from 20% to 14% over the past three years. Additionally, the company’s recently announced 8.5% headcount reduction raises concerns about underlying demand trends.

Valuation Misalignment

Weiss said that Workday remains a high-quality business with strong free cash flow but its current valuation of $66 billion was “more in line with growth-at-a-reasonable-price assets, whereas its fundamentals are trending closer to value-oriented peers.” This misalignment could pose a risk to the stock if growth continues to slow, he warned.

Margin Expansion on Way

Fellow five-star TipRanks-rated analyst Yun Kim of Loop Capital took a different slant. He raised his price target on WDAY stock to $260 from $242 and kept a Hold rating. He said that there hadn’t been any meaningful pick-up in the overall pace of new large-scale IT initiatives at the group, “leading to a sizable bench of unstaffed consultants.” Its planned headcount reduction was also the result of a challenging demand environment. He noted that Workday’s cost structure is more closely aligned with its current growth rate, “with expectations that the company will show a sizable margin expansion going forward.”

Is WDAY a Good Stock to Buy?

On TipRanks, WDAY has a Strong Buy consensus based on 23 Buy and 7 Hold ratings. Its highest price target is $350. WDAY stock’s consensus price target is $302.20 implying an 17.40% upside.

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