<p>Software provider Workday (NASDAQ: WDAY) has grown in line with the wider market over the past two days. Shares of the WDAY stock have risen 12% since Monday’s declines near $ 125 as investors return to the current market.
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But is it worth chasing gains on Workday stocks or is this rally too fragile in the current market? Although the market has combined two-day gains on the promise of federal funds, most people still expect a lot of volatility in the coming days. Here’s a look at where the workday can go next.
The case for WDAY Stock
Workday had traded significantly lower than its peaks in July 2019 for several months before coronavirus became part of the equation. Investors abandoned the stock after management announced a slower growth rate in their Human Capital Management products. The company’s results for the fourth quarter revealed that growth in subscription revenue was 30% for the full year, but forecasts for the financial year 2021 expect that HCM subscription growth will be in its high teens.
Part of that is because Workday is maturing – growth rates above 30% can not continue forever. In the absence of that subscription growth, investors should look for profitability, something that Workday delivered.
Then there is the fact that Workday relies on a subscription-based model, which provides a steady, reliable revenue stream.
Why working day may not be your best bet
In the current climate where a recession looks inevitable, it is important to consider the risks that a software company such as Workday faces. In an attempt to offset the effects of Covid-19 on software companies, Credit Suisse outlined the potential risks facing the industry.
Workday marks several high-risk boxes in Credit Suisse’s disposition. Among the most worrying factors is the criticism in Workday’s offers. If the macro environment continues to shrink, companies will be forced to make budget cuts and eliminate non-essential expenses. According to Credit Suisse analysts, Workday’s product range is unlikely to fall under critical processes that are worth saving.
Other risks include the company’s dependence on expansion to drive future growth and its “high-touch” sales process.
Why WDAY shares are not a steal
While Workday’s overall growth history outside the coronavirus crisis is strong, I do not think it’s time to buy shares right now. With all the uncertainty ahead of us, investors who are ready to start buying should look at cash-rich companies with strong positions.
Now is a good time to upgrade your portfolio with a basket of high quality stocks that have previously been too expensive to consider. Workday may have fallen into that category when trading at $ 125 per share, but at $ 144 per share, I would say it is not a rally worth chasing.
The current meeting is uncertain and is strongly based on the relief offered by the government’s stimulus. The market euphoria will probably disappear when more bad news hits the waves in the coming weeks.
More buying opportunities to come
While the market’s fantastic recovery in recent days has certainly injected some optimism back into Wall Street, the fight against coronavirus is far from over. The economic impact that the virus will have on the world is still unknown and there is likely to be more bad news on the horizon as the number of cases in the United States continues to grow at an alarming rate.
History shows that the market will probably suffer a few more ups and downs before it finally enters a steady upward trajectory, making it worth keeping steady. Now is not the time to jump into the market first – especially not to chase the WDAY share rally.
The conclusion of the working day
There is no reason to completely discount WDAY shares, especially given that the company’s underlying business looks strong. However, I think there are better opportunities to get in stocks like Alphabet (NASDAQ: GOOG, NASDAQ: GOOGL), Disney (NYSE: DIS) and McDonald’s (NYSE: MCD). If you believe in the long-term growth history of the Workday stock, put it on your watch list as there are likely to be better entry points in the coming days.
Laura Hoy holds a degree in economics from Duquesne University and has been writing about financial markets for the past eight years. Her work can be seen in a variety of publications, including InvestorPlace, Benzinga, Yahoo Finance and CCN. At the time of writing, Laura Hoy had no position in any of the above securities.