Another quarter of growth at Anaplan (NYSE:PLAN) got overshadowed by the disaster that has been 2020. The connected planning software company actually topped its own expectations for the first period in its 2021 fiscal year (the three months ended April 30, 2020). But new deals are getting put on hold as organizations sort through the new normal being created by the pandemic crisis, and Anaplan pulled the plug on its full-year guidance amid the uncertainty.

Nevertheless, while shares have rallied from the last time I caught up with Anaplan in early March, the stock remains some 30% below its all-time highs, which were set right before the wheels started coming off the global economy. Growth may be decelerating this year, but shares look like a decent value for the potential this cloud-based planning software pioneer has. 

Someone in a suit picture off screen holding a tablet. A brain made of electrical connections hovers above the screen.

Image source: Getty Images.

A high-level recap

One would think that corporate planning software would be more important than ever in times such as these. And from that standpoint, Anaplan did well during the early days of the COVID-19 breakout. Year-over-year growth topped internal expectations by nearly a million bucks, and adjusted operating profit margin was better than the forecast too. And while remaining performance obligation (sales for which service has yet to be rendered) slowed to a 37% year-over-year rate and many new customer sign-ups paused, the dollar-based net expansion rate was still well into positive territory at 117%. That implies existing customers spent an average of 17% more with Anaplan than a year ago. 

The result was, in spite of significant headwinds, a pretty good quarter -- especially when considering it builds on the 45% growth posted last year. And though operating losses are still there and free cash flow (revenue less cash operating and capital expenses) remains slightly negative, the company notched another big increase in gross profit margin and homed in on break even. There is thus plenty of potential for big profits down the road. 

Metric

3 Months Ended April 30, 2020

3 Months Ended April 30, 2019

Change

Revenue

$104 million

$75.8 million

37%

Gross profit margin

76.2%

71.5%

4.7 pp

Adjusted operating profit margin

(12.9%)

(26.5%)

13.6 pp

Free cash flow

($5.97 million)

($4.98 million)

N/A

Pp = percentage point. Data source: Anaplan. 

But what of the outlook? After all, this is a growth stock that is spending heavily to maximize its sales expansion. Full-year guidance is gone, but Q2 forecasts called for 22% growth in revenue and adjusted operating margin to decrease from Q1 and run at -15% to -16%. That's quite the drop-off from the recent trajectory.

More than just financial planning

Growth is growth, though, and it bears considering that Anaplan's management thinks the slowdown in Q2 will be temporary. Some of the deals with new customers that were close to getting inked got delayed because of the pandemic and should close later on in the year. And while the stock trades for 16.1 times trailing 12-month sales (hardly what would be considered cheap), it is going for far less than the nearly 24 times sales early in 2020. That decrease reflects the slowdown in expectations, but if Anaplan can reignite its growth engine later this year it could be primed for a run higher. 

I think there's a good chance of that happening. As organizations move their data and operations to the cloud, Anaplan's platform will become ever more compelling. While many use cases involve planning corporate finances and optimizing spend, connected planning software has the potential to be so much more. The company said that a few new critical use cases popped up in Q1: hospital bed planning, distribution of personal protective equipment, and workforce retraining. 

That demonstrates the flexibility of Anaplan's cloud-based computing platform to integrate data and help team members across an organization craft better decision making. And the more that data gets added to the cloud and is readily available to get added to the Anaplan software, the higher the value proposition when the company makes its pitch to potential new clients. 

Therefore, in spite of the subdued outlook for the year, I remain optimistic about this stock and think it's a buy -- although I'll be taking a starter position that is less than 1% of my portfolio's value.