The stock of business software provider Workday (WDAY +1.93%) is surging this week. It climbed more than 7% on Wednesday.
What's up? And should smart investors consider putting money into this stock?
Workday provides cloud applications that enable organizations to manage their finances, expenses, sourcing, and human resources, among other business operations. Its applications are used by more than 11,000 organizations globally and about two-thirds of the Fortune 500. The company has a market cap of about $58 billion.
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A strong quarter
The company reported its fiscal second-quarter 2026 results on Aug. 21, and they were robust. Revenue of $2.35 billion was 12.6% higher than the same quarter a year prior, and earnings rose 26% to $2.21 a share. Both figures beat Wall Street expectations.
A particular strength for the company is its growing subscription revenue backlog, which increased nearly 18% during the quarter and grew more quickly than revenue. That indicates that revenue will accelerate in coming quarters. The company also reported a robust operating margin of 29%.
NASDAQ: WDAY
Key Data Points
Much of that subscription growth is being powered by Workday's artificial intelligence (AI) products, from which revenue more than doubled year over year. More than 30% of the company's customer-based deals and more than 75% of its net new deals included at least one AI product.
The stock rose 5% in the week or so after the announcement but then retreated. This week, however, it has risen sharply.
A vote of confidence
That's partly because investment manager Elliott Investment Management announced on Tuesday (Sept. 16) that it has accumulated $2 billion of Workday shares in the stock after meeting with Workday's management team early this week. Elliott said it believes that Workday's multiyear business plan will drive substantial long-term value for shareholders. That's a huge vote of confidence in the software firm.
In addition, one day after the Elliott announcement, Guggenheim Securities upgraded the stock to a buy and set a price target of $285, a 21% boost from the recent share price of around $230. Guggenheim's analyst said Workday is well positioned to boost growth and is a better company today than it was a few years ago.
Finally, this week, Workday also announced it will acquire Sana, which makes enterprise knowledge tools using artificial intelligence. That will add to and enhance Workday's suite of business applications.
A bargain at the moment
Analysts expect Workday's full-year revenue to be $9.52 billion, almost 13% higher than the previous fiscal year (the company's fiscal year ends in January). Revenue is expected to climb another 13% the following year. Earnings per share are expected to rise 22% this year and another 18% next year.
Workday stock is down almost 7% year to date (from Jan. 1, 2025), making it a bargain. The stock is trading at just 25 times forward earnings. That's close to the cheapest it has been (relative to earnings) in more than three years.
Workday's growing backlog, its increasingly bright future as articulated by Elliott Investment and Guggenheim, and its relatively low valuation combine to make this stock one that savvy investors should consider putting money into.
