Workday: strong market position and financial performance

Company Overview:

$WDAY, a leader in human capital management (HCM) and cloud-based enterprise resource planning (ERP) software, has more than 20% market share in HCM. It is among the leading providers such as ADP and Oracle, and has been recognized by Gartner as a leader in cloud ERP for eight consecutive years. Its HCM software is used by more than 10,000 customers, including 60% of Fortune 500 companies.

Customer Leadership and Retention:

-$WDAY has gross revenue retention of approximately 95%, which means it is losing only 5% of revenue from existing customers. This metric is significant for SaaS businesses because customer retention is key to stable revenue.

- The company has achieved a 13% return on invested capital (ROIC), which indicates an efficient use of financial resources.

Financial performance and growth:

-$WDAY grew revenue by 18% in the most recent quarter, beating Wall Street forecasts. Adjusted earnings per share came in at $1.74, which also beat expectations.

- Despite the slowdown in revenue growth, the company continues to expand and maintain consistent revenue growth. This growth is remarkable, especially in a time of economic turmoil and increased interest rates.

- The shift toward profitability is key, as Workday reported a significant net profit last year and expects to continue expanding earnings.

Free Cash Flow:

-$WDAY 's free cash flow has significantly exceeded revenue over the past five years, which is important to shareholders. The company generates a significant amount of cash, which supports its valuation.

Valuation and Growth Potential:

-$WDAY trades at a forward price-to-earnings ratio of 31 and a price-to-cash flow ratio of less than 25. These ratios are not the lowest, but are attractive given the company's growth potential.

- The company expects 17% earnings growth next year, indicating strong potential for further earnings and cash flow growth.

Workday is strongly positioned in the market due to its leadership in HCM and cloud ERP. High customer retention, a quality product and an economic moat ensure steady growth. Financial results and strong free cash flow support a positive outlook for the future. Despite the higher valuation, Workday offers an attractive investment opportunity due to its growth potential and ability to generate earnings and cash.