Workday’s Valuation Gap Could Force a Reckoning — DCF Says Upside, P/E Says Premium; What Changes Next

The immediate consequence is a fork in investor decision-making: a discounted cash flow framework points to substantial upside, while traditional earnings multiples flag a premium. For anyone tracking workday as a potential entry or reweighting in a portfolio, that split defines the short-term debate between a numbers-driven buying case and a multiples-driven caution.

Workday: A valuation divide that changes investor math

What changes next is not a single price move but the criteria investors will use to judge the name. If the market starts leaning on cash-flow projections, the view that the business is deeply undervalued could gain traction. If, instead, sentiment is anchored on current earnings and relative P/E positioning, the case for caution will persist. Here’s the part that matters: the same company is simultaneously shown as materially undervalued by one rigorous model and stretched by another metric—forcing a re-evaluation of which inputs matter most.

• Discounted Cash Flow (DCF) framework applied here is a two-stage free cash flow to equity model.
• The DCF output used in the analysis places intrinsic value substantially above the recent market price, implying a large percentage of upside on that basis.
• By contrast, the company’s P/E multiple sits well above both the software industry average and a set of peers, registering as higher than a model-derived Fair Ratio.

What’s easy to miss is that these methodologies respond to different inputs: projected long-term cash generation and discount rates versus near-term earnings and margin profiles. The real test will be which driver dominates market expectations over the coming reporting cycles.

Valuation mechanics and forward signals

The specific figures behind the split make the stakes tangible. A DCF projection that aggregates long-term free cash flows arrives at an intrinsic-per-share valuation notably higher than the recent share price, translating into an implied undervaluation of roughly half on that metric. Meanwhile, the current P/E multiple is materially above both the software-industry benchmark and peer average, and higher than the model’s suggested Fair Ratio—an indicator that, on the earnings multiple alone, the stock screens as expensive.

Decisions that could tilt the balance include revisions to medium-term cash-flow forecasts, changes in assumed discount rates, and near-term earnings momentum. If free cash flow trends accelerate toward the model’s trajectory, the DCF argument strengthens; if earnings disappoint and margins compress, the P/E premium will look harder to justify.

• Latest twelve-month free cash flow figure sits at a multi-billion-dollar level in the model.
• Projected free cash flow in the model rises substantially by the end of the projection window.
• Resulting DCF intrinsic value compares to a much lower recent market price, implying a large percentage undervaluation on that basis.

Micro timeline: latest twelve-month free cash flow (baseline), model projection that rises to a higher figure in the long-run, and the DCF-derived intrinsic comparison to the recent market price. This sequence explains why the two valuation lenses diverge today.

Key takeaways:

• The valuation split reframes the decision from "is this stock cheap" to "which forecast do you trust. "
• Investors focused on cash generation may view the upside potential as meaningful; those focused on current earnings metrics will likely remain cautious.
• Watch for upward revisions to projected free cash flows or compression of the company’s P/E toward the model Fair Ratio to validate the DCF case.
• Conversely, sustained high multiples without cash-flow acceleration would leave the premium intact and the upside hypothesis unconfirmed.

If you’re wondering why this keeps coming up: valuation methods can point in opposite directions when growth expectations and present earnings diverge. That divergence creates trading opportunities but also increases execution risk for any strategy that leans heavily on one metric.

The bigger signal here is whether market expectations of long-term cash generation move—incremental confirmations of stronger free cash flow or margin expansion would materially alter the picture. Until those confirmations arrive, the split between the DCF conclusion and the P/E assessment remains the central story for investors evaluating workday.