A 12.5% jump on Friday was enough to make Workday (NASDAQ: WDAY) the best performing stock in the S&P 500 index. It completed a 25% move in just three sessions as shares rocketed past their previous all-time highs from last summer without a second glance.
Even as this month prepares to close off as the best August on record since the 80s, it was still a stunning move for the $57 billion HR software company out of Silicon Valley. For any investors wondering how to trim and tailor their portfolios for the
rest of 2020 and beyond, as far as tech exposure goes, you can’t go wrong with a little Workday.
They’ve been perfectly positioned to capture the shift to working-from-home that has been accelerated beyond all reasonable measure by the coronavirus. Its B2B software platform allows companies to manage HR, talent, payroll, analytics, and more online and from a single source of truth. Their Q2 earnings, which helped propel shares last week, painted a pretty picture of a company that’s making the most of an extraordinary situation.
Solid Earnings
Both EPS and revenue came in well ahead of expectations while the latter posted growth of 19% year on year. Considering the company and its investors had to watch their shares fall 45% in just four weeks back in February and March, seeing them pop to all time highs must have been satisfying. What’s even better is that the internal numbers from last week’s report more than justify the move and make the coming months all the more promising.
On a non-GAAP basis, operating income was up 120% while non-GAAP EPS jumped 90% year on year. Inside the banner headline of total revenue climbing 19%, subscription revenue alone was up 23%. Their operating loss of $122 million in the same quarter last year fell 86% to just $16 million this quarter which must have the bulls chomping at the bit. Unsurprisingly, management felt confident enough to raise forward guidance on full year subscription revenue and well they should. Similar companies like Salesforce (NYSE: CRM) and Docusign (NASDAQ: DOCU) have climbed to record highs this month, and the future looks bright for cloud-based, corporate platforms.
As co-CEO Aneel Bhusri said with the news, “it was a strong quarter despite the environment, with continued demand for our products as more organizations realize how mission-critical cloud-based systems are in supporting their people and businesses through continuous change. Despite the near-term uncertainty that remains, our first-half performance has reinforced our confidence in the fundamental strength of our business, and in the long-term opportunity that we see ahead.”
Sell-side Upgrades
Workday’s solid performance in recent months hasn’t gone unnoticed on Wall Street either. RBC analyst Alex Zukin has been watching Workday closely all summer and upped his price target on them in June on the back of “encouraging signs of increased customer engagement across the product portfolio." Earlier this month he boosted his price target again, citing "improved demand amid a healthier end-market and IT budget environment."
Bucking the bullish trend and sentiment we have Loop Capital, who were out two weeks ago with a Sell rating and a $140 price target on the stock. This would require shares to fall around 40% and put them back at March levels. Considering the earnings report that Workday has posted since, there’s undoubtedly a few awkward conversations happening in Loop’s HQ.
For investors thinking about getting involved, this is a textbook growth opportunity in a software company that’s truly coming of age. As it throws off the few remaining shackles of operating losses in the coming quarters, it opens the door up to increased profitability on a consistent basis. And as we’ve seen time and time again this summer, Wall Street loves that kind of story. 
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