Why Anaplan's Recent Slide Is a Buying Opportunity

After the share-price pullback that followed the release of its fiscal fourth-quarter earnings report, Anaplan's (PLAN) stock price is now trading more than 20% below its recent all-time high. And notably, after a year of ups and downs, the software-as-a-service company's shares are fairly close to where they were trading in early February 2020, when worries were starting to build on Wall Street that this "novel coronavirus" might become a real global problem.

However, in that span of time, Anaplan has overcome some big challenges and continued to grow at a fast pace -- even as many of its potential customers have hit the pause button on spending for new software. If you can stomach the oscillations (and buy more on dips like the current one), this SaaS stock is a solid long-term value.

A full-year recap

In Anaplan's fiscal 2021 fourth quarter (which ended Jan. 31), its revenue increased 25% year over year to $123 million -- well above the outlook that management provided a few months ago. It also turned the corner on profitability in an important metric during the quarter, generating $7.5 million in free cash flow.

Image source: Getty Images.

But over its full fiscal year, Anaplan's growth trajectory took a beating. Revenue growth took a sharp turn lower from a nearly 50% rate in fiscal 2020, and net dollar-based expansion sank from 122% in fiscal 2020 to 114% in fiscal 2021 (implying existing customers spent "only" 14% more with Anaplan than the year prior).

Still, it wasn't all bad. Though cloud computing has become an essential business resource, spending on enterprise software broadly took a big hit last year. In this context, Anaplan's growth was more than respectable -- although it isn't surprising the stock lost some ground following the latest report. The share price had run up by more than 30% in the months leading up to that update.

Data source: Anaplan.  

Growth picking up steam again

Anaplan is making quick progress toward full-year breakeven, so that's a good sign (though I'll point out that it still had $321 million in cash and equivalents and no debt at the end of the year, so it has plenty of room to keep spending to promote expansion). In this fast-changing world, there's clear value to planning software that resides in the cloud and helps various teams within an organization collaborate on decision-making. As businesses begin to regroup, Anaplan's subscription-based software sales are showing signs of life again.  

Case in point: Quarterly billings (revenue plus the change in deferred revenue, revenue collected but for which service has yet to be rendered) went from a 27% year-over-year increase in fiscal Q3 to a 37% year-over-year gain in fiscal Q4. And  the company has upgraded its guidance range for fiscal 2022 revenues to $550 million to $555 million -- the previous forecast was for $550 million. At the midpoint of the new range, that would amount to 23% growth over the just-completed fiscal year.

However, Anaplan frequently under-promises and over-delivers when it comes to guidance, and I think there's a good chance its growth will accelerate this year as it starts to lap the first pandemic-impacted periods. Shares trade for 21 times trailing 12-month sales and 17 times forecast revenue. Given that many of its cloud-computing peers trade for well over 20 or even 30 times sales, I still see Anaplan as a relative value -- especially if one is investing for the long term. As large organizations start spending again to update their operations for the new cloud-computing era, Anaplan has a lot to gain. I remain a buyer at this juncture.