Expect Solid Q4 Earnings From WDAY

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Weaker-than-expected fourth-quarter and full-year guidance sent Workday Inc (NYSE:WDAY) tumbling from $95 to $80 last November and December following its third-quarter earnings report.

Workday NYSE:WDAYWDAY stock has since regained its footing and traded well in the last month, jumping 17% to around $92. Now, fourth-quarter earnings are right around the corner, and many investors may be wondering if history is about to repeat to itself.

I don’t think so, but we’ll get to that in a minute.

Workday is one of my favorite companies within the not-so-exciting human resources industry. Workday is changing the game at the intersection of industry trends as it utilizes cloud technology to help clients manage both time and talent through the cloud, rather than on their own premises.

I wrote about WDAY prior to its third-quarter earnings report, and I am the first to admit I did not anticipate the impending weak guidance and selloff.

Still, earnings and guidance weren’t the main reasons I liked Workday stock. I was more interested in the longer-term growth potential, which remained intact.

Workday reported a 68% increase in revenues on an adjusted loss of 3 cents per share. These results were actually much better than what the Street had been expecting. WDAY management’s guidance and comments on the conference call got some traders nervous, and the volatile market in December added to the nervousness.

Fourth-quarter revenue guidance was in line with estimates at 55% growth, though some investors were hoping for more. Full-year guidance came in below expectations at 40% growth instead of 47%. The lowered guidance didn’t necessarily mean that WDAY couldn’t achieve 47%, but the news did seem to scare investors into thinking Workday might hold off on some spending in anticipation of lower numbers.

Workday stock continued to trade lower into the end of 2014 and struggled again with the broad market in the beginning of 2015, but the market’s recent strength has allowed WDAY to regain most of its lost ground. Today, WDAY stock is trading only a few percentage points from where it was prior to the third-quarter report.

Workday is scheduled to report fourth-quarter results after the close on Wednesday, Feb. 25. Analysts are steeled to see a 53.8% increase in revenues and a loss of 6 cents per share. In my opinion, these forecasts are quite conservative as demand for Workday’s human resources and finance cloud-based software remains strong.

Next week’s quarterly numbers will likely match — if not beat — the current consensus, and even just reasonable guidance for fiscal 2015 could send WDAY stock back to its November highs.

Still, even if there are some disappointments, what’s important in the big picture is that Workday is in the very early stages of growth and is finally on the verge of turning profitable. Plus, WDAY has growth opportunities even beyond its current human resource offerings to serve other areas of the enterprise.

In fact, I wouldn’t be surprised to see Workday expand beyond its already dominant position in human resources software into a more complete cloud-based supplier of enterprise software. Such growth potential is why I see WDAY stock as very attractive here at current prices under $92.

Hilary Kramer is the editor of GameChangersBreakout Stocks Under $10 and High Octane Trader.


Article printed from InvestorPlace Media, https://investorplace.com/2015/02/workday-stock-wday-stock-earnings-beat/.

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