Workday, Inc. (NASDAQ:WDAY) shares are up more than 22.17% this year and recently decreased -5.60% or -$7.37 to settle at $124.30. Waste Management, Inc. (NYSE:WM), on the other hand, is up 4.63% year to date as of 10/10/2018. It currently trades at $90.30 and has returned 0.88% during the past week.

Workday, Inc. (NASDAQ:WDAY) and Waste Management, Inc. (NYSE:WM) are the two most active stocks in the Application Software industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

**Growth**

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect WDAY to grow earnings at a 34.90% annual rate over the next 5 years. Comparatively, WM is expected to grow at a 12.60% annual rate. All else equal, WDAY’s higher growth rate would imply a greater potential for capital appreciation.

**Profitability and Returns**

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 26.4% for Waste Management, Inc. (WM). WDAY’s ROI is -10.40% while WM has a ROI of 19.20%. The interpretation is that WM’s business generates a higher return on investment than WDAY’s.

**Cash Flow**

The value of a stock is simply the present value of its future free cash flows. WDAY’s free cash flow (“FCF”) per share for the trailing twelve months was +0.02. Comparatively, WM’s free cash flow per share was +0.78. On a percent-of-sales basis, WDAY’s free cash flow was 0.2% while WM converted 2.31% of its revenues into cash flow. This means that, for a given level of sales, WM is able to generate more free cash flow for investors.

**Liquidity and Financial Risk**

Balance sheet risk is one of the biggest factors to consider before investing. WDAY has a current ratio of 1.90 compared to 0.70 for WM. This means that WDAY can more easily cover its most immediate liabilities over the next twelve months. WDAY’s debt-to-equity ratio is 0.66 versus a D/E of 1.62 for WM. WM is therefore the more solvent of the two companies, and has lower financial risk.

**Valuation**

WDAY trades at a forward P/E of 82.65, a P/B of 15.12, and a P/S of 11.09, compared to a forward P/E of 20.44, a P/B of 6.41, and a P/S of 2.66 for WM. WDAY is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. WDAY is currently priced at a -19.62% to its one-year price target of 154.65. Comparatively, WM is -6.37% relative to its price target of 96.44. This suggests that WDAY is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. WDAY has a beta of 2.15 and WM’s beta is 0.71. WM’s shares are therefore the less volatile of the two stocks.

**Insider Activity and Investor Sentiment**

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. WDAY has a short ratio of 6.80 compared to a short interest of 2.69 for WM. This implies that the market is currently less bearish on the outlook for WM.

**Summary**

Waste Management, Inc. (NYSE:WM) beats Workday, Inc. (NASDAQ:WDAY) on a total of 10 of the 14 factors compared between the two stocks. WM is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, WM is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, WM has better sentiment signals based on short interest.