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A Wake-Up Call To Workday's Valuation

A Wake-Up Call To Workday's Valuation.

Workday is arguably and provably the most overvalued technology stock with lots of downside risk in the near future.

Let me make my point:

Just go to the stock screener of Google Finance.

Choose as sector "Technology"

Get rid of all the criteria (by clicking on the X behind PE ratio etcetera). But leave the market cap and select a market of 2 billion or higher. Then add Price to Sales ratio (via add criteria) and fill out a PS ratio of 30 or higher.

Can you let me know how many results you get?

Then I don't even mention that almost half of Workday's revenue is loss.

Another detail to take into account is that Duffield's last company Peoplesoft was bought in 2004 by Oracle (via a hostile takeover) for 10.3 billion. Peoplesoft had revenue of 2.6 Billion dollar and annual profit of more than 60 million dollars. So it was bought at roughly 4 times revenues. Larry Ellison started his bid at 5 billion something and kept ramping it up to 10.3 billion until the shareholders could no longer refuse.

Workday however is hugely unprofitable and has about 10% of Peoplesoft's 2004 revenues. Yet it has already a market cap comparable to the 2004 purchase sum of Peoplesoft. If that's not a bubble I don't know what is!

In fact, you could argue that WDAY is overvalued with a market cap of 2-3 billion USD. I mean an unprofitable company at 8 to 10 times sales is richly valued. Is it not?

Did I mention that the lockup expiry is April 13, 2013? Does anyone truly believe that insiders will not cash in at the current valuation above the already inflated and raised IPO price of 28 dollars?

Keep in mind that a few months before the IPO the analysts were marveling that Workday would go public at a valuation of 2 billion dollars.

It is now - not even a year later - north of 8 billion dollars. While it yet has to prove itself to be able to make a profit. According to management, of which the CEO is 72 years old, profitability is at least two years away. And net loss of 41 million dollars last quarter, is forecasted to increase over Q1 of 2013.