Workday Inc-Class A (NASDAQ:WDAY): A Strong Affordable Growth Pick with Solid Fundamentals

Investors looking for growth opportunities at fair prices often consider the "Affordable Growth" strategy, which focuses on companies with strong growth potential but reasonable valuations. This method selects stocks with a growth rating above 7, consistent profitability, good financial health, and a valuation score above 5, ensuring the company is not overpriced relative to its fundamentals. The aim is to find businesses capable of sustained earnings growth while trading at a fair multiple, lowering the risk of losses. Workday Inc-Class A (NASDAQ:WDAY) meets these standards, making it a potential choice for growth-focused investors.

Growth: A Key Factor for Workday

Workday’s growth performance is notable, receiving a 7/10 rating in ChartMill’s fundamental analysis. The company has shown strong revenue growth, with a 14.95% year-over-year increase and an 18.42% compound annual growth rate (CAGR) over recent years. Earnings per share (EPS) growth has been even more impressive, rising 24.24% in the past year and averaging 30.89% annually over a longer period. While future growth may slow slightly—with expected EPS growth of 14.37% and revenue growth of 12.73%—these rates remain higher than industry averages, confirming Workday’s role as a leader in cloud-based finance and HR solutions.

Valuation: Fair for a Growth Stock

Despite its growth, Workday is not overvalued, scoring a 5/10 in valuation. Its forward P/E ratio of 21.35 is lower than the S&P 500 average of 35.28, and it is priced below 74% of its software industry peers on this measure. The enterprise value-to-EBITDA ratio also indicates a relatively good valuation, with Workday cheaper than 65% of competitors. While the trailing P/E of 28.37 might seem high, it is supported by the company’s earnings momentum and industry standing. For investors using the Affordable Growth strategy, this balance between growth and valuation is key—it helps avoid paying too much for future earnings.

Profitability and Financial Health: Supporting Growth

Workday’s profitability score of 6/10 reflects stable margins, with a 5.60% net profit margin better than 72% of peers. Its operating margin of 7.27% and gross margin of 75.66% further demonstrate efficient operations. The company’s 7/10 health rating points to a strong balance sheet, featuring a low debt-to-equity ratio of 0.33 and good liquidity, with a current ratio of 2.07. Although its ROIC is currently below its cost of capital—a potential concern—the overall financial strength reduces risk for growth investors.

Why These Metrics Matter for Affordable Growth

The Affordable Growth strategy emphasizes companies that can maintain growth without relying on high valuations. Workday’s mix of strong growth, fair pricing, and solid fundamentals fits this approach. Investors can avoid overpaying for stocks while still benefiting from above-average earnings potential. For a closer look at Workday’s fundamentals, see the full analysis here.

Finding More Affordable Growth Options

Workday is one example of a stock that fits the Affordable Growth criteria. Investors interested in similar opportunities can explore more candidates using this pre-configured screen, which filters for stocks with strong growth, fair valuations, and good fundamentals.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research or consult a financial advisor before making decisions.