Workday Stock Could Be Headed Back to Record Highs

Analyst and option sentiment has been overwhelmingly bearish on WDAY

Apr 17, 2018 at 10:45 AM
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HR software provider Workday Inc (NASDAQ:WDAY) was a big winner in 2017, and that momentum has continued into 2018. The shares are up roughly 22.6% year-to-date, and touched an all-time high of $140 in mid-March. While WDAY has pulled back slightly since then, it’s been consolidating near the 50-day moving average, recently bouncing from a trendline connecting higher lows since the December trough. As such, this could be the perfect time to get behind the long-term outperformer.

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Sentiment surrounding Workday is mostly bearish, however. There are 32 analysts in coverage, and the vast majority rate the security a "hold" or "strong sell." Meanwhile, short interest still represents 11% of the total float -- or two weeks' worth of buying power, going by average daily volumes -- even after the number of shorted shares fell by 8.3% in the two most recent reporting periods. As such, there's a chance the equity could benefit from future upgrades and/or further covering from short sellers.

Options traders have shown bearish tendencies, too. In fact, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 50-day put/call volume ratio of 1.08, which ranks in the 94th annual percentile. In other words, put buying has outpaced call buying in the past 10 weeks -- a very rare sight. An unwinding of these positions could also support WDAY on the charts.

It's also attractive that the stock has a Schaeffer's Volatility Index (SVI) of 35%, ranking in the bottom one-third of annual readings. This hints at lower-than-normal volatility expectations for near-term options.

Subscribers to Schaeffer's Weekend Trader Series options recommendation service received this WDAY commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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