Workday (NASDAQ:WDAY) is down 18% since hitting an all-time high in February. Some of this was due to the overall sell-off in the tech sector. Investors have different priorities in the tech sector and, for now, software companies such as Workday appear to be on the outside looking in.
Sometimes stocks get caught up in a larger trend. Many investors have been riding the coattails of this phenomenon for the last year. It may just be fear of missing out (FOMO), but many stocks continue to move higher despite fundamentals that don’t support their valuation.
But when a stock is caught in a bearish trend, all the wishing and hoping isn’t enough to change the narrative. That seems to be the case with WDAY stock.
Earnings Were Good, But Not Good Enough
Workday’s posted a top line number of $1.18 billion ahead of analysts’ estimates for $1.16 billion and a 15% year-over-year (YOY) increase. On the bottom line, the company beat non-GAAP forecasts by 14 cents (87 cents EPS as opposed to 73 cents).
But it’s fair to say that the company may have fallen short of lofty expectations in its earnings report. Workday’s guidance for subscription revenue of $1.095 billion to $1.097 billion for the next quarter didn’t do much to excite investors. And even with a 17% boost in full-year revenue guidance, analysts are still holding their powder on WDAY stock.
Will Work From Anywhere Be a Boon or Bane?
Workday provides cloud applications on an enterprise level. The company’s applications help customers manage critical business functions and optimize financial and human resources functions. The company got a boost during the pandemic as companies needed to support a remote work environment.
However, it’s fair to say that the revenue, even that of the recurring variety, is already factored into WDAY stock. And therefore, investors are starting to look at the company’s subscription revenue number for next quarter with an upturned eye.
And investors may be sending a message since Workday has announced that they are embracing a return to the office for its employees. This is a move that noticeably puts Workday out of sync with its tech counterparts.
I’m not sure that this should have any effect on WDAY stock. But until analysts get a clearer picture of what the future of work will look like, it’s likely that software providers will remain under pressure.
Investors Are Just Looking Elsewhere
I’ll admit to spending an excessive amount of time looking at Workday and wondering why it’s not performing better. But sometimes you just don’t fight the trend. For the last couple of years, SaaS companies have killed it.
But the stocks may have gotten a little ahead of themselves, at least in the eye of analysts. And right now, investors are turning their eyes to areas like space, big data and, more recently, data security. None of this makes Workday a bad stock, but it does raise the bar on what they have to deliver to investors.
For example, analysts may point at something such as Workday’s plans to increase its headcount by approximately 20% in 2022 as a reason for concern. But then again, the 12-month price target for WDAY stock shows a gain of nearly 20% from its current level.
See what I mean, it’s maddening. For that reason, I think it’s best to avoid large positions in Workday. The chart doesn’t present a great technical setup, but if it dips below $222, it will likely be entering into oversold territory.
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