Analysts call Workday a wide-moat stock because it has a lasting edge. This is due to high switching costs and high-quality mission-critical items. The moat is proven by its high net dollar retention rate.
Workday expects 17% to 18% sales growth next year, similar to its latest quarter. Subscriptions make cash flows more predictable than alternative revenue models because 92% of sales are subscriptions. This is helpful for a newly profitable company. Prices-to-cash-flow for Workday are around 32. This pricing is attractive provided it meets growth ambitions.
Workday isn't a hidden gem with exponential growth at $70 billion. An established company with outstanding development potential and a fair valuation might return five times your investment over time.
3. ServiceNow ServiceNow (NYSE: NOW) introduced IT workflow automation software for managing tech teams, which every large firm needs. Since then, the organization has added finance and customer service tools. As customers employ AI to drive tech transformation, ServiceNow is deeply invested in its disruptive power.
Gartner rates the company among industry leaders. Excellent retention data—the company has constantly expanded client relationships and had 98%+ customer renewal rates—supports its leadership position.
ServiceNow anticipates sales to grow 25% next year after posting 26% growth in the latest quarter. It expects a constant adjusted operating margin in 2024, so cash flows should follow the top line.
The stock's forward P/E is approaching 60 and price-to-cash-flow is 45. Both are pricey but realistic given the growth potential.
Stocks at this value carry volatility risk, but the company's competitive strength and growth potential make it a potential tech powerhouse.
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