Workday, Inc. (WDAY) and Alight, Inc. (ALIT) are two prominent players in the cloud-based software industry. Pleasanton, Calif.-based WDAY develops enterprise cloud applications that help customers manage critical business functions and optimize their financial and human resources for the finance, healthcare, manufacturing, education, and technology industries worldwide. ALIT, in Lincolnshire, Ill., operates as a cloud-based provider of integrated digital human capital and business solutions worldwide. It offers benefits and payroll solutions, cloud deployment solutions, and cloud application services that comprise cloud advisory, deployment, and application management services for cloud human capital management and financial platforms.

The ongoing digital transformation in almost all industries and the rising adoption of advanced cloud-based software platforms to facilitate remote working should drive the software industry’s growth. The global software market is expected to grow at a 7.2% CAGR between 2021 - 2026. So, both WDAY and ALIT should benefit.

But, while ALIT has gained 13% in price over the past nine months, WDAY has surged 22.5%. WDAY is a clear winner with 14% price gains versus ALIT’s 12.1% returns in terms of their past month’s performance. But which of these stocks is a better pick now? Let’s find out.

Click here to check out our Cloud Computing Industry Report for 2021 

Latest Developments

On September 8, 2021, WDAY agreed to acquire Zimit, a cloud-based configure price quote (CPQ) solution built for enterprise services industries. With Zimit, WDAY will provide organizations with a comprehensive quote-to-cash process automation offering and provide increased visibility across the entire revenue cycle. Such automation of complex finance processes should  enable WDAY to gain widespread recognition across the industry.

On August 26, 2021, ALIT signed a definitive agreement to acquire ConsumerMedical, a leading clinical advocacy and expert medical opinion company. With its comprehensive clinical support model and expansive network of multi-disciplinary experts and clinicians, ConsumerMedical delivers targeted information to guide employees to suitable treatment options and highest-quality providers. ConsumerMedical should  enhance ALIT’s ability to help employers build a healthier workforce through data-driven, personalized solutions.

Recent Financial Results

For the fiscal second quarter, ended July 31, 2021, WDAY’s total revenues increased 18.7% year-over-year to $1.26 billion. The company’s non-GAAP operating income came in at $291.80 million for the quarter, up 13.2% from the prior-year period. While its non-GAAP net income increased 51.5% year-over-year to $319.78 million, its non-GAAP EPS increased 46.4% to $1.23. As of July 31, 2021, the company had $1.09 billion in cash and cash equivalents. 

For its fiscal second quarter, ended June 30, 2021, ALIT’s total revenue increased 3.9% year-over-year to $672 million. The company’s operating income came in at $56 million, up 211.1% from the year-ago period. However, ALIT’s net loss was  $4 million, down 84% from the prior-year period. Its loss per share decreased 82.9% year-over-year to $33.65. The company had $460 million in cash and cash equivalents as of June 30, 2021. 

Expected Financial Performance

Analysts expect WDAY’s EPS to increase 5.5% year-over-year in the next year. Its revenue is expected to grow 18.9% year-over-year in the next year. The stock’s EPS is expected to grow at an 18.7% rate over the next five years.

ALIT’s EPS is expected to decline 9.5% year-over-year in the next year. Its revenue is expected to grow 4.5% year-over-year in the next year. Analysts expect the stock’s EPS to decline at a 19.7% rate per annum over the next five years. 

Valuation

In terms of forward EV/Sales, WDAY is currently trading at 12.88x, which is 550.5% higher than ALIT’s 1.98x.     

In terms of forward EV/EBITDA, WDAY’s 46.29x is 406.5% higher than ALIT’s 9.14x.  

POWR Ratings

While ALIT has an overall D grade, which translates to Sell in our proprietary POWR Ratings system, WDAY has an overall B grade, equating to Buy. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree. 

WDAY has a grade of C for Momentum, while ALIT has a B. This is in sync with their price performance.

WDAY has an A grade for Sentiment, which is consistent with favorable analyst estimates about its earnings. Analysts expect WDAY’s EPS to grow at an 18.7% rate per annum  over the next five years. However, ALIT’s D grade for Sentiment is in sync with analysts’ forecast that its EPS will decline at a 19.7% rate per annum over the next five years.

Of  147 stocks in the Software - Application industry, ALIT is ranked #99, while WDAY is ranked #26. 

Beyond what we’ve stated above, our POWR Ratings system has also rated WDAY and ALIT for Value, Stability, Quality, and Growth. 

Get all ALIT ratings here. Also, click here to see the additional POWR Ratings for WDAY.  

The Winner

While rising demand for cloud-based software platforms should benefit both ALIT and WDAY, we think its lower valuation and better analyst sentiment make WDAY a better buy here. 

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Software - Application industry. 

Click here to check out our Cloud Computing Industry Report for 2021

WDAY shares were trading at $270.39 per share on Thursday afternoon, up $0.54 (+0.20%). Year-to-date, WDAY has gained 12.85%, versus a 20.33% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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