This Underdog Deserves Your Attention!

Shaunak is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

We love underdogs when it comes to any sort of sport or competition but when it comes to investment, it is a whole different ball game altogether and we need to be wary before placing our bets on the underdogs.

The Underdog

It is really good to see Workday Inc. (NYSE: WDAY) making good progress in the highly competitive software industry. Founded in 2005, WDAY offers web based application to their clients which helps them to manage human resources efficiently. WDAY does indeed have an edge over some of its rivals as it gives the option to pay as per usage. This business model makes them much more approachable and salable.

Workday has already got Johnson Controls, Yale University and J.B. Hunt Transport Services under its banner amongst others. Their pay-as-you-use policy makes it easier for companies facing problems with their existing architecture as they try and experiment with companies like WDAY.

WDAY's model has definitely worked. They beat market expectation by posting losses of 39 cents a share which was a good improvement of almost 20% compared to the 49 cent a share loss that was expected. I believe WDAY will generate about $76 million - $78 million next quarter as well which will be nearly 10% above expectation of $70 million. They have been investing a lot on research and development of new products while enhancing their existing offerings especially in the Financial Sector according to Mark Peek, CFO.

It is a long road ahead before WDAY starts making some good profit but what is worth noting is that it definitely is moving in the right direction, beating market expectation, quarter after quarter!

Better Stay Away

Tell me one good reason why I should invest in Salesforce.com (NYSE: CRM). The Cloud-Computing industry gives you just one chance to establish your name for the clients and the investors and in my opinion CRM has failed to deliver. Oracle and SAP are already way ahead of the others in the industry and WDAY is squeezing itself between the two for market share. In this scenario you cant be interested in a company with a forward P/E of 79. I don't always go by the statistics, but this just screams out "expensive"!

CRM has been showing an increase in revenues this year and they are indeed expected to have a 33%-34% growth in revenues by the end of this financial year, but what is worrying is that despite their revenue increase, things are not trickling down to the investors. In fact their Q3 report showed investors losing over $1.5 a share. This fact is really worrying for an investor and it leaves us at a place where we cannot make sense out of it. CRM painted a very distracting picture with its Q3 report as their revenue growth took much of the attention and very few people actually looked at the alarming fact that there has been a decrease in revenue coming from contracted services that are due for delivery.

Investors should really look at the fact that for a company that lay its foundation along with the likes of Google, CRM has barely shown any growth potential despite the presence of a multi-billion dollar industry at their disposal.

The Forerunner:

SAP AG (NYSE: SAP) along with Oracle shares almost whole of the SaaS market . At over $78 a share SAP is trading at a 52 week high and shares are up by over 45% compared to what it was last year, this time around.

SAP has consistently shown good growth in revenue and great cash flow from operations as well. They recently launched  their Predictive Analysis Software as well which can be used as a standalone software or along with other SAP products to be a highly efficient predictive product. SAP has also teamed up with Accenture to extend its current capabilities and along with that they’ve also developed six new SAP mobile apps for Windows 8. This is a clear indication of the fact that SAP is still growing and their outlook is very positive and future friendly.

SAP probably is an expensive buy but then again they do pay well when they make good money, and they do make good money. SAP AG is a forerunner for a very good reason and it is improving at every step. This is a very safe place for investment indeed and it promises a good return over the long run.

The Bottom Line:

Its already proven that Oracle and SAP are good investments and frankly they've been dominating the SaaS industry since the beginning of the 21st Century. I do not see Workday changing that in the next two or three years, but I definitely see them making sure that they have a good chunk of the of the market share along with the big shots!

 


Shaunak88 has no positions in the stocks mentioned above. The Motley Fool owns shares of Salesforce.com. Motley Fool newsletter services recommend Salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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