Undervalued by 25%, This Stock to Buy Has a Long Growth Runway

Workday appears to be flying beneath the radar of most investors: The stock of this leader in cloud-based human capital management and financial management software has significantly underperformed the market over the past five years. Yet we think there’s plenty to like here. Workday has carved out a wide economic moat thanks to high switching costs for its products. The company’s agentic artificial intelligence initiatives are gaining traction, too: Management says more than 60% of clients are leveraging its Workday Illuminate AI platform. We think customers are in the very early stages of agentic AI adoption and therefore see an extended growth runway for Workday’s AI offerings. The stock looks attractive, trading 25% below our fair value estimate. Workday lands on Morningstar’s list of The Best Tech Stocks to Buy. It is also one of Morningstar Chief US Market Strategist Dave Sekera’s 5 Cheap Stocks to Buy in August.

Although Workday is a relatively new entrant to the enterprise resource planning market, it has been able to take share from competitors by demonstrating that adopting cloud-native enterprise systems provides a superior user experience and reduces total cost of ownership for modern enterprises. As Workday continues to hone the usability of its platform and build an ecosystem with third-party partners, we believe it now operates the best-of-breed cloud-only solution for human capital management. In recent years, Workday has also been doubling down on its financial management platform to offer a full-suite experience for customers.

Key Morningstar Metrics for Workday

• Fair Value Estimate: $300
• Star Rating: 4 Stars
• Economic Moat Rating: Wide
• Uncertainty Rating: High

Economic Moat Rating

We assign Workday a wide moat rating based on the strong switching costs that it enjoys. Human capital management and financial management platforms are crucial to an enterprise’s back-office operations. They also integrate with other enterprise systems, including business intelligence, risk management, and compliance. Changing a platform provider is typically a yearslong project costing millions of dollars. We see clear revenue stickiness with Workday, which has maintained a gross retention rate of over 95% and a net retention rate of over 100% for more than seven years in a row. We believe Workday’s switching costs support a wide moat that will keep returns on invested capital above the cost of capital over the next 20 years.

Read more about Workday’s moat rating.

Fair Value Estimate for Workday Stock

Our $300 fair value estimate implies a fiscal 2026 enterprise value/sales multiple of 8 times and adjusted price/earnings multiple of 35 times. We forecast that Workday will increase revenue at a five-year compound annual rate of 13%. We expect moderate margin improvements as Workday expands its revenue base, with gross margin increasing 520 basis points and non-GAAP operating margin increasing 900 basis points over the next five years. Workday’s R&D expense has been higher than sales and marketing expense over the past few years, but we think sales and marketing should overtake product development in the near term as the company focuses more on new growth areas in the US public sector and international markets.

Read more about Workday’s fair value estimate.

Risk and Uncertainty

Workday is in an earlier stage of its lifecycle than other mature enterprise resource planning system vendors. This brings more uncertainty regarding its revenue growth trajectory and final margin profile. The company is subject to the overall dynamics of the labor market, as well as industry-specific workforce headwinds. Its sales cycle is usually a year or longer, adding uncertainty as customers constantly scrutinize their needs before closing the deal. Workday is prone to severe ramifications from security breaches, given the high stakes of financial and employee data and the fact that the cloud-only experience is a major selling point of Workday’s products.

Read more about Workday’s risk and uncertainty.

Workday Bulls Say

• Workday already has a large customer base as enterprises have moved their corporate systems to the cloud, offering upselling opportunities as it rolls out new modules.
• Workday is strengthening its partnership with IT organizations globally, bringing its products to key international markets like Japan and Europe.
• Using Workday’s human capital management and financial management systems together provides a better customer experience, which should help the company land more full-suite deals.

Workday Bears Say

• Workday’s financial management platform still lacks some of the advanced functionality of other solutions, which may limit future module attach rates.
• Workday’s expansion in industries with specialized feature requirements, like government and education, may be slower than expected.
• The company’s ecosystem still requires significant buildout. Competition might intensify if other players choose to invest more and catch up.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of Aug. 6, 2025, unless otherwise noted.