Workiva Is a Small Cloud Player with Tremendous Upside
The cloud segment is massive, and is rapidly growing in both size and scope. It was sizzling along but, after a rapid acceleration in their prices, cloud industry stocks have been under pressure. Given the price weakness, we are seeing some value emerge, including for Workiva Inc (NYSE:WK) in the small-cap segment.
The cloud industry is dominated by the major technology companies, but there is plenty of business to go around. The market size is in the hundreds of billions of dollars, and could grow into a trillion-dollar business in the next decade.
Many of you are probably not familiar with Workiva stock, but the stock has outperformed the S&P 500 index over the past year, with a 33% advance and 23.44% growth year-to-date.
Workiva provides its cloud-based “Wdesk” productivity platform to over 2,600 companies worldwide, including about two-thirds of S&P 500 companies. Clients use the platform for planning and analyzing data to better effectively run their businesses.
Revenues have risen sequentially in three consecutive years to $178.64 million in 2016. The revenue growth at Workiva is slated to continue at 14.50% and 15.20% in 2017 and 2018, respectively. (Source: “Workiva LLC (WK),” Yahoo! Finance, last accessed April 20, 2017.)
Workiva Revenues 2014–2018 ($ Millions)
- 2014: $112.69
- 2015: $145.27
- 2016: $178.64
- 2017: $204.63
- 2018: $235.66
The rise in Workiva revenues has been accompanied by higher gross profits and gross margins hovering at around the 70%–72% range.
Workiva Gross Margins
- 2013: 71%
- 2014: 71%
- 2015: 72%
- 2016: 71%
The thing that is missing so far has been the absence of profits but, with revenues growing and costs under control, it is just a matter of time. Workiva has been operating in the red in four straight years, and losses are expected to continue into 2017 and 2018. We could see profits emerge in 2019 if things pan out.
Chart Points to WK Stock Testing $18.50
A look at the below chart shows WK stock failing at two previous attempts—in late 2015 and September 2016—at breaking and holding above long-term resistance at around $18.50.
Chart courtesy of StockCharts.com
WK stock appears to be seeking a third attempt at $18.50 in the current rally that began in February 2017 following a bullish double bottom.
The above Workiva stock chart points to the emergence of a potential bullish golden cross on the horizon, as the 50-day moving average (MA) looks to move above the 200-day MA on rising relative strength (RS).
A sustained break at $18.50 on strong RS could set WK shares in motion for a move to above $20.00. The downside risk is $14.00 to $16.00 for Workiva stock.
As a trader, you could minimize the assumed risk associated with entering a trade by using call options on WK shares. Available expiry months include May, July, and October 2017.
But be careful, as the short time-span means that there is little time for the trade to pan out. In this situation, you would lose only the premium that you paid if Workiva shares do nothing, or you would make leverage gains if WK stock jumps.