Anaplan Has Nearly Doubled Since IPO: Is It a Buy Today?

All was not well with the stock market when Anaplan (PLAN) made its debut in the autumn of 2018. Nevertheless, the cloud-based business planning software suite bucked the double-digit downward trend Wall Street suffered during the fourth quarter, and its stock has doubled since its initial public offering. But even though shares have skyrocketed, it's not too late to jump aboard the Anaplan bandwagon.

Kicking off the new year with a bang

Anaplan is helping lead the charge in connected planning -- enabling many users within a business to remotely view decision-making assumptions and outcomes in real time. Solutions cover all sorts of bases, from finance to sales to supply chain decisions. The need for advanced decision-making across an organization is in high demand, and Anaplan's results are proof.

Data source: Anaplan. YOY = year over year; p.p. = percentage point.  

The first quarter is especially impressive, considering it comes on top of a 43% revenue increase in 2018. Losses did get steeper, but the software company is a grow-now profit-later endeavor. Adjusted losses did narrow, but that's because the company went public and issued more shares -- meaning more hands to share the load.

However, Anaplan is picking up new customers -- the number of enterprises that spend at least $250,000 a year grew 43% year over year to 279 -- and existing customers are increasing their spending on planning software; the net dollar expansion rate was 123% during the quarter. The combination is a powerful tailwind that should continue to lift the company's top line for some time to come before management decides it's time to start focusing on the bottom line.

Image source: Getty Images.

What's next for Anaplan?

Let's dig into those losses for a moment. Though there is plenty of red when one looks down the income statement, it's apparent that it is self-induced. Operating expenses far exceed revenue and continue to rise at a staggering rate -- especially money allocated toward sales and marketing.

Data source: Anaplan. YOY = year over year.  

The pedal-to-the-metal operation is yielding results, though, and revenue is growing faster than expenses. At this rate, sales won't eclipse expenses anytime soon, but it's worth bearing in mind that $16.3 million of the $91.4 million quarterly total is stock-based compensation to employees. That dilutes ownership for current shareholders, but it does dampen the cash drain.

At the moment, Anaplan is difficult to value. Even free cash flow -- money left over after basic operations and capital expenditures are paid for -- isn't useful, as the company is still negative in that metric, although it was nearing in on breakeven during the quarter with a $5 million negative free cash flow, compared with negative-$16.2 million a year prior.

Price to sales is what we're left with at this point, and Anaplan trades at 18.6 times trailing-12-month sales. That makes for a hefty price tag, but it's not uncommon for cloud software outfits. It isn't an apples-to-apples comparison, but The Trade Desk (NASDAQ: TTD) goes for 22.2 times sales and Atlassian (NASDAQ: TEAM) for 28.2 -- although the higher premium could in part be because both companies tend to run in positive free cash territory.

Thus, what investors can hang their hat on with Anaplan is outlook. For the full fiscal year 2020, management raised its revenue guidance to a range of $326 million to $331 million -- a 37% increase at the midpoint of guidance. In its short history as a public company, it has under-promised and over-delivered, so it's possible the final results will come in even higher. Either way, it's a fantastic growth story in the making.

This stock isn't for everyone, but those looking for a high-octane addition to their portfolios could do far worse than Anaplan. Expect to have some inevitable bumps in the road as with any growth company, but the future looks bright for the connected planning software provider.