Please ensure Javascript is enabled for purposes of website accessibility

Why Workday Stock Sank 24.8% in March

By Keith Noonan – Apr 8, 2020 at 10:54AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Economic concerns tied to the coronavirus pandemic pushed the enterprise software company to a 52-week low last month.

What happened

Shares of Workday (WDAY 0.28%) slipped 24.8% in March, according to data from S&P Global Market Intelligence. The enterprise software company's stock was hit hard as the coronavirus pandemic dimmed the business' growth prospects.

^SPX Chart

^SPX data by YCharts.

Workday has posted impressive growth in recent years as more companies have adopted its cloud-based software for human resources and business finance management. But a growth-dependent valuation has also predisposed the stock to large swings when performance comes in below expectations. The stock's movements tracked roughly in line with the broader market in March, but its share price declined roughly twice as much as the S&P 500 index's level. 

A person using a computer keyboard.

Image source: Getty Images.

So what 

Workday's strong track record of customer satisfaction and its heavily subscription-based software model suggest that the company should hold on to most of its current subscribers even if economic conditions worsen. The company also has substantial long-term growth opportunities as it adds customers for services like procurement, but it's reasonable to expect that business momentum will be hurt in the near term. With the coronavirus causing many companies to shut down or temporarily switch to work-from-home operations, Workday's potential customer base will likely be less inclined to pursue big growth projects or make the switch to new software platforms. 

Now what

Workday stock is up roughly 1% in April's trading amid positive momentum for the broader market.

^SPX Chart

^SPX data by YCharts.

The company issued guidance for the current fiscal year when it reported fourth-quarter results at the end of February. At the time, it laid out expectations for first-quarter subscription revenue to come in between $873 million and $875 million, representing year-over-year growth of 24.7% at the midpoint.

Management also set a target for full-year subscription revenue between $3.755 billion and $3.77 billion, good for annual growth of 21.4% at the midpoint. But these targets were established before the pandemic and its related business closures and operating modifications in the U.S. It remains to be seen how the situation will impact performance.

Workday is valued at roughly 7.1 times this year's expected sales and 61 times expected earnings.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Workday. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Workday Stock Quote
$159.45 (0.28%) $0.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.