No one enjoys losing money, and watching a stock plummet can be unnerving for even the most experienced investor. But it's important to remain calm and make rational decisions. Don't sell just because a stock's price is falling.
For instance, Appian (APPN +0.23%) stock is down 55% from its 52-week high. But I still own shares, and I don't have any plans to sell them. Here's why.
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Digital transformation
Appian provides a low-code automation platform (LCAP), enabling clients to build intelligent applications and automate workflows with little or no coding. Compared to traditional processes, Appian's LCAP can build software 10 times faster and at half the cost.
This helps enterprises operate more efficiently, while also driving differentiation. Anyone can buy prebuilt software, but Appian's LCAP allows clients to develop and implement unique solutions. For instance, pharmaceutical companies have used its platform to streamline drug development, and retailers have turned to Appian to roll out new lines of business.
Last year, the coronavirus disrupted enterprises worldwide, emphasizing the importance of a digital-first strategy. Accordingly, research firm Forrester believes 75% of application development will use low-code platforms by the end of 2021. That's a big increase from 44% in 2020, and it should be a tailwind for Appian.
The Appian guarantee
Research firm Gartner has recognized Appian as a leader in the low-code industry, citing its ability to handle complex workflows as a key differentiator. That's certainly an advantage, but Appian bolsters this edge with its customer-centric business model.
Appian believes its LCAP is faster than rival products, and it backs that claim with The Appian Guarantee -- a promise that anyone with a technical background can learn to use its platform as a developer in just two weeks, and that any enterprise can build their first application in just eight weeks.
Appian is the only company in the industry to offer that type of assurance. And that advantage has helped it grow at a steady pace, despite competing with software titans like Microsoft and Salesforce.
|
Metric |
2018 |
Q1 2021 (TTM) |
CAGR |
|---|---|---|---|
|
Revenue |
$226.7 million |
$304.6 million |
16% |
|
Gross Profit Margin |
63% |
72% |
N/A |
Data source: Appian SEC filings. TTM = trailing-12-months. CAGR = compound annual growth rate.
As Appian's revenue mix has shifted toward software-as-a-service, its gross profit margin has trended higher. Appian expects this to continue, which could push its gross margin closer to 90% in time. Put another way, Appian could be an exceptionally profitable business.
To add to that, its retention rate was 118% in Q1, indicating an 18% uptick in average customer spending. Appian targets retention of 110% to 120% each quarter. If it can maintain that range while also adding new customers at a good clip, the compounding effects could accelerate revenue growth. Investors should pay attention to these metrics in the coming quarters.
When should you sell?
My goal is to buy stocks I can hold for the long term, meaning at least three to five years. But I still periodically reassess my investment theses. If something significant has changed or some part of my original logic no longer makes sense, then I consider selling.
That's why I'm holding on to Appian. According to management, the company has a $37 billion market opportunity, and that figure should only get bigger as digital transformation drives adoption of low-code development. Moreover, as a leader in the industry, Appian is well positioned to capture value over the long term.
That being said, I plan to monitor the company's ability to add and retain customers and grow its top line. If those metrics start trending in the wrong direction, it might be time to sell.
