It's been a wild ride for cloud-based planning software company Anaplan (PLAN) during the pandemic. Share prices are up about 23% since the start of 2020 but remain more than 25% down from the all-time highs set early this year.

Some corporate spending on digital updates hit the skids in the past 18 months. But resource planning software is making a comeback as spending starts to normalize, and Anaplan stock is rallying following a solid Q2 earnings update. Here are three reasons this cloud computing company is still a buy.

Two people pictured off screen looking at charts and a tablet.

Image source: Getty Images.

1. Data-driven planning software is a must

Enterprise resource planning (ERP) software, often used to outlay the use of a company's finances and other assets, represents a massive market worth tens of billions in global annual spending. However, for many organizations, cloud computing has changed the game. More data on their operations is available than ever before. But traditional ERP tools aren't always accurately accounting for information, nor is it helping various teams across an organization collaborate together on their plans. 

That's where Anaplan comes in. CEO Frank Calderoni often talks about the company's work pioneering cloud-based corporate planning. In a nutshell, Anaplan combines financial planning with operational planning into a single software service. And since the platform was born and raised in the cloud, it's able to gather up various data from across an organization and help previously siloed teams plan and make assumptions together. Add in a dash of machine learning that helps the platform automate predictions and outcomes of decisions -- Anaplan is a modern take on ERP -- and you have a company that's been outpacing average industry growth since it went public in late 2018.  

2. Enterprise spending is back on the mend

In spite of a solid run in its first couple of years as a public concern -- revenue grew 43% in Anaplan's fiscal 2019 and 45% in fiscal 2020 -- the pandemic brought corporate spending on some digital transformation initiatives to a screeching halt. As a result, Anaplan's sales slowed significantly and grew only 29% in fiscal 2021 -- the 12 months ended in January 2021 -- with quarterly growth last spring slowing far more than that in the initial months when the world went on lockdown.

Business is accelerating this year, though. Total revenue increased 36% year over year in the second quarter of fiscal 2022 -- the three months ended July 31 -- bringing the first half of the year's revenue up to $274 million, a 30% increase from the same period last year. The midpoint of guidance for Q3 implies another 27% year-over-year increase.

Bear in mind that Anaplan often underpromises and over-delivers when making its sales forecasts, but second-half fiscal 2022 guidance was nonetheless better than what Calderoni and the top team said to expect a few months ago. As the effects of COVID-19 start to ease, companies are starting to resume their digital transformation plans, and Anaplan continues to pick up new business as a result.

3. Plenty of cash left to deploy

Anaplan operated at a negative free cash flow of $16.4 million during Q2, a slight improvement from an $18.8 million deficit a year ago. Losses may not sit well with all investors, but Anaplan does this by design, as it prioritizes marketing and development to continue its pace of expansion. Anaplan can still afford to promote rapid expansion for a long time. Total cash and equivalents were at $313 million at the end of July and had no debt.  

Investor takeaway

Based on Anaplan's full fiscal-year 2022 outlook, shares trade for about 16 times revenue based on enterprise value -- a market cap of $9.6 billion minus $313 million in cash. Given the company's growth profile and the massive potential the cloud computing market presents, with global spending expected to hit $1 trillion a year by the end of this decade as IT updates operations to cloud systems -- it's not an unreasonable price tag. I remain a buyer after the Q2 earnings update.