Is Workday, Inc. overvalued or undervalued?

As of 25 February 2025, the valuation grade for Workday, Inc. has moved from attractive to very expensive, indicating a shift in perception regarding its market value. The company is currently overvalued, with a P/E ratio of 101, significantly higher than its peers, such as International Business Machines Corp. at a P/E of 84.75 and Cisco Systems, Inc. at 24.57. Additionally, Workday's EV to EBITDA stands at 67.73, compared to IBM's 43.65, further highlighting its premium valuation relative to the industry.
In terms of performance metrics, Workday's ROCE is 15.21% and ROE is 7.62%, which, while respectable, do not justify the high valuation multiples it commands. The stock has underperformed relative to the S&P 500 in the year-to-date period, with a return of -8.31% compared to the index's 2.44%. This underperformance, coupled with its elevated valuation ratios, reinforces the conclusion that Workday, Inc. is currently overvalued.