Shares of Appian (NASDAQ:APPN), a software developer that helps other businesses create custom low-code applications, rose nearly 10% on Wednesday afternoon. However, there doesn't appear to be any company-specific news that can explain the jump. The big move could simply be a recovery from the beating that Appian's stock took earlier in the week.
Appian's stock dropped sharply on Monday and Tuesday in response to a pair of analysts' downgrades.
The first downgrade came from an analyst at Barclays. On Monday, Raimo Lenschow lowered his rating on the shares from equalweight to underweight because of valuation concerns. Raimo noted that a big investment firm called Abdiel Capital started to aggressively buy Appian's shares, which lead to the soaring share price. While Riamo remains bullish on the company's prospects, he feels that shares are currently overvalued.
The second blow came from SunTrust. On Monday, Robinson Humphrey downgraded the stock to hold from buy, citing the recent "significant stock appreciation."
When combined, these downgrades knocked down Appian's stock more than 20% in total between Monday and Tuesday's trading sessions. Today's jump is likely being caused by opportunistic investors who are taking advantage of the chance to get into this momentum stock at a discount.
Appian's stock has risen 72% in the last month, and shares currently trade at more than 13 times sales. Given those numbers, it is understandable why a few Wall Street analysts feel that the share price has gotten ahead of itself.
However, a quick glance at the company's quarterly results shows why shares have been on such a good run. Revenue is growing quickly, subscription revenue retention rate remains well above 100%, and the company's net loss is falling drastically. What's more, the company's just added another $76 million to its debt-free balance sheet, so continuing to finance those losses shouldn't be a big deal.
Overall, Appian is a high-growth tech company that trades for a premium valuation, so volatility is to be expected. Investors who are in this company for the long haul should try to ignore the day-to-day fluctuations and remain focused on the long-term potential of the business.