Goldstein: Workday A 'Storm In The Cloud,' Has 64% Downside

Goldstein Research said Workday Inc WDAY is one of the most misjudged and overvalued cloud SaaS-based companies on Wall Street, in a new note on Wednesday. Goldstein recommends a Strong Sell with a price target of $25.

Workday Looks Like 'Fancy' Book

In Goldstein's own words, "WDAY is like a fancy looking book — everybody only sees the cover, but nobody bothers to look inside.

"On the cover, everything looks great, the stock price is up on strong growth, but a look into the details reveals that last quarter was, in fact, an inflection point for the company. From now on, it could not be more obvious that WDAY is in the deceleration stage, and has already used its entire bag of tricks to fuel as much revenue growth as it could ever get."

Valuation And Other Numbers

The report said the stock trades at 138 times its 2019 consensus EPS of 53 cents amid decelerating revenue growth, aging software and broken business model. It also questioned how the company is expected to generate $3.2 billion out of a total $9.9 billion in industry revenues. 

The Rest Of Goldstein's Thesis

Goldstein also slammed the immediate sale of stock options by Chairman David Arthur Duffield following the quarterly results. After quarterly results on March 1, the stock rose 18.7 percent before Duffield's sale. 

"The sale by Chairman Duffield signal that the stock price is too high and the growth is over or maybe something else. Given the Chairman's behavior, it's a pity to be a shareholder of WDAY — company insiders are cashing at the shareholders expense," Goldstein said.

Goldstein noted that Workday has been consistently losing $60 million to $80 million per quarter on the bottom line for the last three years for a $270 million per year basis. The only way to fix this is to cut expenses, thereby lowering growth and market share.

"At this pace, WDAY will NEVER earn money — its operating expenses are larger than gross profit," Goldstein concluded.

Shares of Workday were largely ignoring the report, up on Wednesday.