Ceridian HCM Holding Inc. (CDAY - Get Rating) is a human capital management software company. Its popular solutions include Dayforce, Powerpay, and Bureau solutions. However, the company has an ISS Governance QualityScore of 9, indicating high governance risk.

Shares of CDAY have declined 55.6% year-to-date and 15.9% over the past month, primarily due to the ongoing tech rout. As the Fed is expected to intensify its hawkish stance, shares of software solutions company CDAY might plummet further in the near term.

Here’s what could shape CDAY’s performance in the near term:

Poor Financials

CDAY’s total revenues increased 25.1% year-over-year to $293.30 million in the fiscal first quarter ended March 31, 2022. However, the company’s operating loss widened 687.5% from the same period last year to $18.60 million. EBT loss nearly doubled from the prior-year quarter to $24.40 million, while net loss worsened 42.7% from the year-ago value to $27.40 million. Loss per share amounted to $0.18, compared to a $0.13 loss reported in the prior-year quarter.

Bleak Profit Margins

CDAY’s trailing-12-month EBIT margin stood at a negative 3.57%, while its net income margin was negative 7.72%. The company’s trailing-12-month ROE of negative 3.89% compares with the industry average of 7.67%. Moreover, its trailing-12-month ROA and ROTC stand at negative 0.76% and 0.72%, respectively.

CDAY’s trailing-12-month gross profit margin of 42.61% is 15.4% lower than the industry average of 50.38%.

Stretched Valuation

In terms of non-GAAP forward P/E, CDAY is currently trading at 102.32x, 504.4% higher than the industry average of 16.93x. Its forward EV/EBITDA multiple of 40.72 is 256.4% higher than the industry average of 11.42.

In addition, the stock is currently trading 5.66 times its forward Sales, 118.8% higher than the industry average of 2.59. Its forward Price/Cash Flow ratio of 63.14 is 294.3% higher than the industry average of 16.01. Also, CDAY’s forward EV/Sales multiple of 6.64 is 154.7% higher than the industry average of 2.64.

POWR Ratings Reflect Bleak Prospects

CDAY has an overall rating of D, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of D for Momentum and Quality. The stock is currently trading below its 50-day and 200-day moving averages of $57.03 and $87.10, respectively, indicating a death-cross downtrend in sync with the Momentum grade. In addition, CDAY’s negative net profit margin and ROE justify the Quality grade.

CDAY is ranked #129 out of 155 stocks in the F-rated Software – Application industry.

Beyond what I’ve stated above, view CDAY ratings for Growth, Sentiment, Stability, and Value here.

Bottom Line

Shares of CDAY have declined more than 50% since the beginning of 2022, compared to the benchmark Nasdaq Composite index’s 29.7% decline. As the Fed gears up to hike interest rates by 75 basis points, the overvalued CDAY stock is expected to remain under pressure in the near term. Moreover, given the increasing borrowing costs, CDAY’s profit margins might shrink further in the upcoming quarters. Thus, CDAY is bst avoided now.

How Does Ceridian HCM Holding (CDAY) Stack Up Against its Peers?

While CDAY has a D rating in our proprietary rating system, one might want to consider looking at its industry peers, Commvault Systems, Inc. (CVLT - Get Rating), Rimini Street Inc. (RMNI - Get Rating), and Enghouse Systems Limited (EGHSF), which have an A (Strong Buy) rating.

CDAY shares were trading at $45.23 per share on Thursday morning, down $1.98 (-4.19%). Year-to-date, CDAY has declined -56.70%, versus a -22.12% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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