Shares of low-code programmer Appian (APPN 0.82%) tumbled in morning trading on Wednesday, falling more than 10% initially, although 15 minutes into the trading day, they had recovered to only a 7% loss.
You can blame Macquarie for that.
This morning, StreetInsider.com reported that the Australian investment bank has initiated coverage of Appian with an underperform (sell) rating and a $68 price target. With Appian shares trading at $139 currently, this implies that Macquarie is predicting a more than 50% sell-off in the stock over the next 12 months. (So no wonder investors are scared.)
What makes Macquarie take such a dim view of Appian? The company "offers solid and scalable low/no-code automation platform technology that helps unlock development efficiencies," the analyst concedes, but the stock's valuation "is far ahead of itself."
Profit margins are negative at Appian, Macquarie notes, and indeed, according to data from S&P Global Market Intelligence, Appian has never earned a full-year profit, so it has no P/E ratio. Instead, it sells at an enterprise-value-to-sales ratio (based on fiscal year 2022 consensus estimates) of 42.
Not all the news is bad. While Macquarie is correct in pointing out Appian's GAAP unprofitability, the company's cash flow statement shows that free cash flow -- while also negative -- is not as bad as the income statement makes things look. Last year, for example, Appian reported a net loss of $51 million, but free cash flow was only negative $41 million. Similarly, through the first three quarters of fiscal 2020, net losses were $27 million, but negative free cash flow only $14 million.
With analysts forecasting nothing but more losses and more cash burn as far out as estimates go, none of this means that Macquarie is wrong, or that Appian stock is anything other than horribly overpriced. Still, the trend is moving in the right direction, and if Appian does manage to turn profitable at some point, its stock might eventually be worth buying.