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I've been scratching my head trying to figure out how the market values Workday (WDAY), the software-as-as-service company. I used to do that with Salesforce.com (CRM).

Hot off an IPO launch, Workday has a market cap of $8.1 billion yet has no earnings and sales more typical of small cap stocks. Next to Workday, Salesforce appears conservatively valued.

Get a load of this:

Despite Salesforce having sales that are twelve times as large as Workday, Salesforce's market cap is only two-and-a-half times Workday's. What makes Workday get a higher valuation than Salesforce?

Then it hit me. Workday might be a younger version of Salesforce. Workday has supercharged revenue growth reminiscent of an earlier Salesforce.

So I checked out "baby" Salesforce back in 2004 when it had a very similar yearly revenue of $176 million and a steaming 85% revenue growth. The 2004 Salesforce was the spitting image of Workday. So, how did the market value the growth rocket 2004 Salesforce? Back then, Salesforce "only" had a P/S of 12 - 13 with a P/CF of 86 and a much humbler $2 billion market cap.

Compared to Workday, Salesforce - young or old - is a steal.

Talking about steal, Workday's financial results are due November 28. With its sky-high valuation, even a minor disappointment might send shares plummeting. This stock just might plunder your investment portfolio.

Source: Workday: An Overvalued Stock Ready To Drop

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