Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of cloud-based enterprise software company Workday (NASDAQ:WDAY) declined on Thursday after the company reported largely in-line earnings. Down as much as 10% during morning trading, the stock had recovered some of its losses by 3 p.m., down about 6% on the day.

So what: The fact that the stock sank even as the company met analyst expectations is an indication that expectations from investors were high. Workday reported revenue of $226.3 million for the fourth quarter, up 59% year over year, and a few million dollars higher than the average analyst estimate. The company reported a non-GAAP net loss of $0.06 per share, in-line with analyst expectations. On a GAAP basis, Workday's net loss for the quarter was $0.32 per share.

Workday guided for first-quarter revenue between $242 million and $245 million, above the analyst consensus of $239.5 million. Guidance for the full year also came in above expectations, with the company projecting 42%-45% revenue growth in fiscal 2016.

Now what: To say that Workday's valuation is generous would be an understatement. The stock trades at a staggering 21 times sales, even after the stock declined today. On a GAAP basis, Workday recorded an operating loss of $216 million for the full year, a whopping 27% of revenue. Even with the company's operating cash flow benefiting from the heavy use of stock-based compensation and a big increase in unearned revenue, free cash flow was still negative for the year.

Given the valuation, it's not surprising that the market reacted negatively to Workday's results. Most fast-growing software companies like Workday at least manage to report positive non-GAAP earnings, usually thanks to adding back stock-based compensation, but Workday is unprofitable even on a non-GAAP basis. It seems as though the stock's valuation has completely detached from the fundamentals of the business. For that reason, Workday appears to be a very risky proposition.