Workday Stock: Looking Attractive At Key Levels (NASDAQ:WDAY)

Workday Inc. (NASDAQ:WDAY) is regarded as an excellent investment due to strong financial growth, large and expanding market, strong customer base, and strategic partnership in the past few years. The company’s revenue and margins have been steadily increasing. The large and expanding market for cloud-based software presents Workday with a significant opportunity for future expansion. Additionally, the company is expanding partnerships with large corporations to expand its reach and capabilities.

Despite strong revenue growth, share prices declined by more than 50% in 2022 due to a broader economic downturn that has made investors more risk-averse. The decline in the Workday share price was a result of the decline in other technology stock prices across the board. In 2022, the changes in the macroeconomic environment, interest rates, inflation, and government policies had a substantial impact on the stock market. However, the Workday share price decline reaches a strong support level, creating an excellent opportunity for investors to participate in the next move higher. The key level of support in Workday is $130 and the recent bounce from the key levels indicates bullish pressure.

Workday Performance

Since Workday’s inception, the company has demonstrated strong financial performance, with consistently high revenue growth and widening margins. Workday’s growth is also evident in the quarterly reports, as the revenue increase is very consistent. The company’s third-quarter revenue was $1.60 billion, a 3.9% increase from the previous quarter. However, the increase in revenue for the third quarter was 7.7%. It is discovered that revenue is also growing annually. The revenue for 2022 increased by 19% compared to 2021. The majority of the company revenue comes from subscriptions, which increased by 20% from the previous year. In contrast, the operating loss for the previous year was $116.5 billion, whereas the non-GAAP operating income was $887 million. In 2022, operating cash flows grew by 30%, from $1.27 billion to $1.65 billion.

The primary factor behind the enormous increase in Workday’s stock price is the large and expanding market. Workday has a significant opportunity for future growth due to the market expansion in the sectors of cloud-based enterprise software. In the past year, Workday’s success was also fueled by a strong customer base that is continuously increasing. The company’s customer base included many Fortune 500 companies, which contributes to a stable revenue stream. In order to expand its reach and capabilities, the company has also forged strategic alliances with Amazon Web Services, Microsoft Azure, and Google Cloud Platform.

Workday Looks Attractive at Key Levels

It is interesting to observe that Workday’s share price decreased by more than 50%, despite solid financial data, in 2022. It is not possible for any stock market to rise for an extended period without a correction. This is because as the market rises, valuations become increasingly stretched, and investors are more cautious, leading to a correction. Additionally, Covid-19 crisis, increase in inflation, geopolitical tensions, and economic downturns in 2022 also lead to a drop in Workday share price.

Nonetheless, the decline in share price produced a strongly bullish inverted head and shoulders pattern. The market is consolidating and forming the right shoulder over the past five weeks. Last week’s price close above $170 was a bullish sign, implying that any move above the previous week’s high will trigger a massive rally toward the $200 region. The bullish structure is also observed in a large number of other technology stocks, and this month’s earnings announcements for a large number of other stocks increase market volatility.

Market Risk

Despite the strong financial performance, Workday has some potential risks that investors must consider prior to making an investment. Workday faces competition from a large number of smaller niche competitors in 2023, but Oracle, SAP, ADP, and Microsoft remain the primary competitors. Workday’s revenue is derived from a small number of customers, which increases the company’s susceptibility to the loss of a large client. The success of Workday is heavily dependent on the continued service of its key personnel, including the co-founder and CEO. Workday’s chairman, Aneel Bhusri, has led the company to a $5 billion valuation, but he has delegated CEO duties to Carl Eschenbach starting in January 2024. Carl Eschenbach is a former VMware executive in VMware.

Recent economic turbulences increase the risk to the performance of Workday in 2023. The Federal Reserve’s efforts to combat inflation by increasing interest rates have a significant impact on the global economy. In my opinion, inflation is out of control, and the Federal Reserve will maintain higher interest rates for the long term. However, the US dollar will continue to decline in 2023, increasing the likelihood of a stock market rally.

Conclusion

Workday is a leading provider of enterprise cloud applications for finance and human resources, and its revenue has increased steadily over the past few years. The company has a proven track record of providing customers with innovative solutions that meet their evolving needs. Despite key risk factors, the share price of the company is at a very attractive level, whereby investors use this level to accumulate more positions in portfolios. Currently, the share price closed the previous week above $170, and any move above the previous week’s highs will initiate the rally to $200. The price must remain above the key level of $130 to continue rising.