For investors looking for a mix of solid expansion and fair pricing, the "Growth at a Reasonable Price" or "Affordable Growth" method presents a noteworthy option. This method tries to find companies showing good, lasting growth paths that are not completely seen in their current stock prices. By selecting stocks with high growth marks along with acceptable scores in profitability, financial condition, and price, investors can search for chances where the market may not be charging too much for future prospects. Workday Inc-Class A (NASDAQ:WDAY) appears from such a filter, offering an example of this investment thinking.
A Look at Enterprise Software
Workday Inc. is a well-known supplier of enterprise cloud applications, mainly for finance and human resources. Based in Pleasanton, California, the company works with more than 11,000 organizations globally using its set of products, which includes Human Capital Management (HCM), Financial Management, Spend Management, and Planning tools. By providing adaptable, AI-driven systems, Workday aids businesses in many fields, from financial services and healthcare to government and education, adjust to new conditions and handle their staff and money more efficiently.
Growth: The Main Force
The basic attraction of Workday in a fair-price growth view starts with its good growth picture, which receives a mark of 7 out of 10. The company has shown a notable ability to increase its revenue and earnings steadily.
- Past Results: In the last year, Workday's Revenue increased by 13.16%, while its Earnings Per Share (EPS) rose by 24.89%. The longer-term pattern is even more notable, with an average yearly EPS increase of 30.89% and Revenue increase of 18.42% over recent years.
- Future Outlook: Experts expect this progress to keep going, though at a somewhat slower speed. Estimated future growth rates predict average yearly rises of 17.80% for EPS and 12.58% for Revenue. This mix of a good past performance and reliable expected growth creates the base for its label as a "growth" stock.
Valuation: The "Affordable" Test
A high-growth narrative is only interesting if the cost is fair. Workday's valuation mark of 5 points to a neutral or fair position, which is important for the affordable growth filter that looks for stocks "not too expensive."
- Comparative Cost: While Workday's Price/Earnings (P/E) ratio of 24.84 might seem high alone, it is viewed as somewhat low compared to other software industry companies. The company costs less than about 68% of the industry based on its P/E ratio and less than around 72% based on its Price/Forward Earnings ratio.
- Growth Adjustment: The PEG ratio, which changes the P/E for expected growth, shows a proper valuation for Workday. This implies the market price fairly considers the company's future earnings growth, sidestepping the too-high cost often given to high-growth companies.
Supporting Basics: Condition and Earnings
For growth to be lasting, it must rest on a steady base. Workday's financial condition and profitability marks, both at 6, show a company with acceptable core operations.
- Financial Condition: The company keeps a good balance sheet. Its Altman-Z score of 4.91 indicates little short-term chance of failure, and it does better than over 72% of its industry rivals on this measure. While its debt/equity ratio is higher than some competitors, its good free cash flow means it could in theory pay all its debt in just over a year, showing controllable debt.
- Profitability: Workday's change to steady earnings is a main point. It has good margins, with an Operating Margin of 15.55% that does better than 82% of the software industry. Its Return on Invested Capital (ROIC) of 9.29% is also strong compared to peers. These numbers show the company is not just increasing sales but is doing so effectively and with profit.
Final Thoughts and More Study
Workday Inc. shows the kind of company sought by an affordable growth method: one with a confirmed past and good outlook for earnings growth, selling at a price that is fair within its high-growth industry, and backed by reliable profitability and financial condition. This mix tries to give contact to growth while reducing the chance of paying too much for it.
For investors wanting to examine other companies that fit similar "Affordable Growth" rules, our set stock filter is found here: View the Affordable Growth Screen. You can also see the full basic study for Workday here.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. Investing has risk, including the possible loss of original money. Always do your own study and think about your personal money situation and risk comfort before making any investment choices.
