Last year, the coronavirus pandemic forced vast numbers of businesses to close their offices, leaving many enterprises in desperate need of digital solutions. This threw a spotlight on the importance of agile software development and highlighted the value of Appian's (NASDAQ:APPN) low-code platform.

Much to the delight of its shareholders, Appian stock price has skyrocketed by more than 320% in the last 12 months. But those gains are in the past, and the company faces competition from much larger rivals. So, does Appian have what it takes to deliver millionaire-maker returns from here?

What is a low-code platform?

Appian's low-code platform makes it possible for almost anyone to build computer applications. With the platform's visual interface, clients create software using a drag-and-drop method rather than writing lines of code. That helps Appian's customers achieve agility without keeping a multitude of software developers on the payroll.

Woman developing software at a computer.

Image source: Getty Images

Ultimately, Appian's solution translates into faster, more cost-efficient software development. In fact, during the company's most recent earnings call, CEO Matt Calkins estimated that Appian's low-code platform improves enterprise productivity by a factor of 10 (or more). That's a very enticing value proposition.

Not surprisingly, Appian benefits from high demand across several software markets like low-code development, robotic process automation, and custom enterprise software. Collectively, management puts Appian's total addressable market (TAM) at $37 billion. And several of its target markets are growing quickly.

Appian's advantage

Appian faces competition from enterprises like Microsoft (NASDAQ:MSFT) and salesforce.com. Both offer low-code platforms with similar functionality, and their greater scale gives them more customers to cross-sell to, and more capital to invest in their operations.

Even so, Appian was ranked as a leader in Gartner's most recent report on enterprise low-code platforms. Specifically, Gartner highlighted Appian's extensive suite of automation tools (which help clients manage complex workflows) as a key differentiator, as well as its ability to develop apps for both customer and employee experiences.

Appian also outranked Microsoft and Salesforce in Gartner's Peer Insights report, earning better scores for overall client satisfaction and willingness to recommend the product. Those are important metrics: Happy customers make for great marketing, and they tend to stick around longer than dissatisfied ones.

As evidence, Appian's renewal rate was 99% in 2020, up from 96% in 2019. And its cloud subscription revenue retention rate was 119% last year. In other words, not only is it keeping nearly all of its customers, but its average customer is also spending more with the company each year.

Appian's financial performance

In 2020, Appian's customer base grew by 30% to reach 693. That marked an acceleration over the prior year. Notably, 55 of those customers had contracts valued at $1 million or more, up from 48 in 2019.

Revenue growth accelerated similarly, and the company's gross margins jumped sharply, driven by a shift in the mix away from professional services revenue, which comes at a much lower margin than subscription revenue.

Metric

2019

2020

Change

Revenue

$260.4 million

$304.6 million

17%

Gross Margin

64%

71%

7 percentage points

Source: Appian SEC Filings.

Appian's strong financial performance during what was a difficult year for many businesses is encouraging. Yet its trailing-12-month revenue represents less than 1% of its market opportunity, meaning it still has plenty of room to grow.

The verdict

Investors should remember that Appian is much smaller than competitors like Microsoft and Salesforce. And while it benefits from its focus on low-code technology, its rivals' broader businesses also give them advantages. For instance, they don't need their low-code platforms to be profitable. In fact, Microsoft recently started offering a portion of its platform (Power Automate) at no charge to Windows 10 users. It's hard to compete against free products.

However, Appian's platform has use cases across many rapidly growing markets, and there is room for several winners in all of them. As Microsoft CEO Satya Nadella once said: "Every company is now a software company." That insight has never been more true -- any enterprise that hopes to compete in today's digital world must be able to quickly develop software solutions at scale.

From that perspective, Appian looks like a great long-term investment. And while any stock's ability to make an investor into a millionaire depends on several factors (most obviously, the size of one's investment), I believe this tech company has the potential to make investors richer in the years ahead.

As a final caveat, it's never a bad idea to build a position slowly, especially with richly valued companies like Appian.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.