Here’s why weekday stocks are rising today

Business Management Software Company Stock Working day (DAY OF S 12.55%) rose 11.7% as of 11:55 a.m. ET Friday, according to data from S&P Global Market Intelligence, in response to second-quarter results reported after Thursday’s close. Although fresh economic headwinds led to only mediocre guidance, strong revenue growth allowed the organization to beat its final estimates. An aggressive share buyback plan, backed by wider profit margins, further fuels today’s bullish flames.

Shifting gears in response to deceleration

For the three months ended July, Workday turned in $2.09 billion in non-GAAP/operating earnings of $1.75 per share. Both figures were significant improvements from year-ago comparisons of $1.79 billion and $1.43 billion, respectively. And while sales were only in line with estimates, profits easily beat expectations of $1.64 per share.

However, the future may prove harsher than the past or the present. CEO Carl Eschenbach commented during Workday’s Q2 earnings conference call: “We continue to experience transaction control and moderate headcount (employee) growth in our customer base.” In this regard, the growth guidance for subscription revenues until 2027 has been reduced from an annualized rate of 18% to 15%, although this slowdown is already taking shape. Subscription revenue growth guidance for the current quarter is just $1.96 billion, just below estimates.

But the software company is responding… albeit indirectly. While overall growth may be slowing now, Workday plans to increase profit margins going forward by cutting costs and expanding more carefully. If all goes according to plan, operating profit margins should increase from around 25% now to 30% by 2027.

This new focus on profitability is clearly exciting investors. Those higher profits will also help support an additional $1 billion in share buybacks announced Thursday night.

Labor Day stocks still offer many advantages here

A nearly 11% increase in a stock in a single day can be intimidating to potential buyers. Such moves often invite profit-taking, undermining the gain in question. We might see at least a little of that with Workday stock here.

Overall, though, there are still more pros than not. Even with Friday’s big advance, Workday shares are 17% below their February peak. And more than half of the analyst community currently rates Workday stock a strong buy. Just be prepared for continued volatility if you plan to get involved.