The Best Tech Stock to Buy Now Is an HR Juggernaut

These are boom times for the overall workforce in the U.S. – and independent contractors as well.

A record 150 million Americans had jobs at the end of August, the last month for full data. That's an increase of 2.3 million jobs in just one year.

Plus, there's also a record 6.9 million openings just waiting to be filled. And a 3.9% unemployment rate is one of the best we've seen in decades.

Now, when we spoke on Sept. 26, I told you of a great way to play the rise of the independent workforce.

After all, this group is growing much faster than the overall jobs boom. As I noted, that's a rising market with a lot of profit potential.

But today, I want to talk about the opportunities that are waiting on the flip side of that investing coin.

In others words, I want to introduce you to a tech leader that has the right products to help employers manage their growing number of workers... and stands ready to meet a very target-rich market.

I'm talking about a fast-moving firm that's doubling its sales every two years.

Here's how...

Why Workday Is Growing So Fast

If all our employment tech leader did was keep pace with the economy, it would be in a big uptrend. Second-quarter GDP was a decade-best 4.2%. August was the 95th consecutive month in which American employers hired more people than they fired, the longest streak on record.

Here's the thing: All those new jobs are great news for tech investors on two fronts.

First is the fact that it signals a strong economy eight years into the recovery.

Second, all those new workers require employers to go through a wide range of steps to integrate them. Each of these new hires will need at least some of these items covered – personnel files, training, tax forms, health benefits, overtime sheets, and 401(k) plans, just to name a few.

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For many human resources (HR) departments, integrating all those forms and tracking systems takes hours and can costs thousands of dollars for each new worker.

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Now you know why Human Capital Management (HCM) leader Workday Inc. (Nasdaq: WDAY) is growing more than seven times faster than the overall economy.

And all that growth is paying off for investors. It's already done quite well since I first alerted you to this winner almost a year ago to the day. During that time, Workday has gained nearly 45%, compared with a 17% return for the S&P 500.

But if you're thinking that's it for this firm, don't worry... I still see plenty of gains ahead.

Managing Payrolls in the Cloud

Let's talk about HCM for a moment. This profitable niche touches upon a wide range of HR tasks. In addition to the items we just talked about, HCM covers:

  • Payroll
  • Workforce planning
  • Performance management
  • Compensation planning and strategy
  • Time and expense management
  • Onboarding

Firms can tackle this mountain of workflow by themselves. Or, they can turn to Workday and make use of its top-flight and expansive HCM platform.

Clearly, a growing roster of firms are moving to outsource in this segment. The Gartner Group says the HCM market is growing 8.4% a year and will be worth some $12.6 billion by 2019.

And Workday can perform all of those tasks that firms once did in-house. Not to mention the fact the firm is moving into more advanced areas that companies could never undertake on their own. For example, Workday now deploys a Big Data analytics engine that can spot HR problems before they emerge.

This engine also allows top management to pose a range of questions about their workforce and get instant answers. Financial analytics are playing a big role here as well.

Not only that, but these moves are helping Workday pivot toward an even bigger field, known as enterprise resource planning, a market Gartner values at $27 billion.

As Workday has rolled out new services, the firm has been able to attract a much larger pool of new clients. And each one is spending a lot more every year.

For example, back in 2010, the firm had 160 clients and a sales base of $68 million. Today, more than 35% of the Fortune 500 and approximately 50% of the Fortune 50 have selected Workday to handle their HR and HCM needs.

All in, the firm has more than 1,000 clients, and sales should approach $3 billion this year. Recent new client wins include Eli Lilly and Co. (NYSE: LLY), Siemens AG (OTC: SIEGY), Humana Inc. (NYSE: HUM), Samsung Electronics Co. Ltd. (OTC: SSNLF), and Target Corp. (NYSE: TGT).

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These clients are being added to a roster that already includes some of the largest firms in the country, such as Walmart Stores Inc. (NYSE: WMT), Inc. (Nasdaq: AMZN), Netflix Inc. (Nasdaq: NFLX), and Citigroup (NYSE: C).

Many of these clients are also embracing Workday's cloud-based financial management system. The number of clients using one or more cloud-based modules shot up 60% in the most recent quarter.

Workday's Deal Making

To help accelerate that push, Workday shelled out $1.55 billion this past June to acquire Adaptive Insights, which had emerged as one of the leading providers of cloud-based business planning and financial modeling tools.

You can get a clear read on Workday's future growth strategies by looking at a pair of other recent deals. In July, the firm bought analytics startup Stories specializes in augmented analytics that uses machine learning and artificial intelligence to automate analysis and deliver real-time business insights.

Around that time, Workday also bought Rallyteam, a San Francisco startup that helps firms keep talented employees by matching them with more challenging opportunities in-house.

Even before these deals kick in, Workday is delivering robust organic growth. Sales are poised to rise around 30% this year, and another 25% to 30% in 2019 and 2020. By then, we'll be looking at a firm with a roughly $4.5 billion sales base.

Now then, with a market cap of $31.6 billion, the stock trades at $145 and will benefit from multiple tailwinds. Based on a projected earnings growth rate of 36% a year, I think we could see this stock double in as little as three years.

In other words, the firm has enough new tools in its toolbox to fuel its move into lucrative new fields. And more importantly, it's set for a long-term rally, even if the amazing jobs growth we've seen of late slows a bit.

That means we can count on this savvy tech leader to pad the value of our portfolios for many years to come.

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The post This Workforce Tech Firm Has Employers' Backs as Staff Headcounts Swell appeared first on Strategic Tech Investor | Michael A. Robinson.

About the Author

Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...

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