Workday (NYSE:WDAY), a cloud-based enterprise software provider specializing in financial and human resource management, recently announced its fourth-quarter fiscal 2025 (fiscal ends in January) performance. The company exceeded analyst expectations, posting earnings of $1.92 per share with revenue reaching $2.21 billion, surpassing the projected $1.78 per share and $2.18 billion respectively. This strong performance was partly attributed to growing demand for the company’s artificial intelligence capabilities.
WDAY stock, with -8% returns since the beginning of 2024, has underperformed the broader S&P500 index, up 28%. This can be attributed to the company posting downbeat guidance over the past few quarters. If you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
Workday Q4 Soars on Subscription Surge
Workday’s revenue of $2.21 billion in Q4 reflected a 15% y-o-y growth, primarily due to a 16% rise in subscription services. The company’s comprehensive financial offerings, and increased AI product adoption fueled sales growth.
During the fourth quarter, the company experienced a 240 basis point year-over-year improvement in adjusted operating margin, reaching 26.4%. This combination of revenue growth and margin expansion drove a 22% increase in earnings to $1.92 per share.
For fiscal 2026, Workday projects subscription revenue will grow 14% to $8.8 billion, while adjusted operating margin is forecast to improve by 210 basis points to 28%. These projections are above the consensus estimate of approximately $8.5 billion in sales.
Does WDAY Stock Has Room For Growth?
Workday’s stock is up over 12% in after-market hours, reacting positively to the Q4 results. Volatility isn’t new for WDAY stock. The performance of WDAY stock with respect to the index over the last four-year period has been quite volatile. Returns for the stock were 14% in 2021, -39% in 2022, 65% in 2023, and -7% in 2024.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts and ongoing trade wars, could WDAY face a similar situation as it did in 2021, 2022, and 2024 and underperform the S&P over the next 12 months – or will it see a strong jump? From a valuation perspective, we think there’s still some room for growth.
At its current pre-market price of $285, WDAY shares are valued at 9.1x trailing revenues, below the company’s five-year average price-to-sales ratio of 10.4x. Given the robust double-digit growth in subscription services combined with enhanced profitability metrics, an upward adjustment in valuation multiples from present levels appears warranted. Despite recent price appreciation, we believe WDAY stock still has potential for further upside.
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