Appian’s stock price has taken a beating over the past six months, shedding 32.5% of its value and falling to $22.98 per share. This may have investors wondering how to approach the situation.
Is now the time to buy Appian, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Appian Not Exciting?
Even with the cheaper entry price, we don’t have much confidence in Appian. Here are three reasons we avoid APPN, plus one stock we’d rather own.
1. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Appian’s revenue to rise by 10.5%, a deceleration versus its 19.4% annualized growth for the past five years. This projection doesn’t excite us and suggests its products and services will face some demand challenges.
2. Long Payback Periods Delay Returns
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Appian’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a competitive market and must continue investing to grow.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Appian has shown weak cash profitability relative to peers over the last year, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 8.4%, below what we’d expect for a software business.
Final Judgment
Appian’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 2× forward price-to-sales (or $22.98 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re fairly confident there are better stocks to buy right now. We’d suggest looking at the most entrenched endpoint security platform on the market.
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