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Workday: Stock of the Week

After rapidly gaining market share by doing one thing really well, Workday is now also looking to grow from within its market.

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Andrew Willis: If you're in a large company, chances are you've become increasingly familiar with Workday (WDAY), which is great for investors because it drives up switching costs. But the most exciting growth is among the 95% of workplaces that have yet to implement the software at all.

Workday has been growing in the human capital management market in part by developing industry-specific capabilities. Adapting to a client company's needs is a lot easier when you focus on one offering instead of four, which is commonly offered by enterprise software competitors.

Rather than manage finances, assets, regular operations, and human capital in an all-in-one solution like offerings from SAP (SAP) and Oracle (ORCL), Workday started by focusing only on human capital, which it turns out, works fine for clients. Equity analyst Julie Bhusal Sharma believes companies are willing to deal with a "mix and match" quilt of software if it means they can have best-of-breed. And it also takes a third of the cost and time to integrate.

Opportunities for Growth

So far, Workday has already signed up 60% of Fortune 50 and 50% of Fortune 500 companies, and they see the addressable market continuing to grow at 20% year over year. The company also sees particular opportunities in international and medium-sized businesses.

After rapidly gaining market share by doing one thing really well, Workday is now also looking to grow from within its market, "rebundling" its human capital management software with other solutions, like financial management. An uncommon strategy for an already-rare opportunity to buy shares of a wide-moat, positive-trend company at a discount.

For Morningstar, I'm Andrew Willis.

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Andrew Willis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.