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How To Think About Appian's Valuation

By Jeremy Bowman and Nicholas Rossolillo – Nov 2, 2021 at 10:45AM

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Here's how this cloud stock's price tag compares to some of its peers' valuations.

Appian (APPN 1.20%) has been on a wild ride over the past year as the stock tripled in just a couple of months with the help of the short squeeze  before giving back much of those gains.

In this segment of Motley Fool Beat and Raise, recorded on Oct. 8, Fool.com contributors Jeremy Bowman and Nicholas Rossolillo dig into Appian's valuation and how it compares to some of its peers. 

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Nicholas Rossolillo: Let's talk about the valuation though for a minute because it has been a wild ride for Appian in the last year-and-a-half especially. The valuation has changed a lot as a result in that period of time. I'll pull up YCharts here.

Jeremy Bowman: Yeah, I was going to do that. Yeah, go ahead. I think that's the best way to... It was kind of a crazy combination of a short squeeze and better-than-expected numbers, but I don't think anybody was really expecting this to happen.

Nick Rossolillo: [laughs] This is crazy. The short squeeze, for context, early last year in 2020 when the whole world goes on lockdown, everybody gets beat up, and a bunch of short sellers piled on against Appian. But then as things started to ease, as the year progressed, Appian surprised everybody, I think, with some pretty strong revenue growth. Jeremy, you were talking about that almost 50% over the last few years compound growth of the Cloud subscription model.

Jeremy Bowman: Right.

Nick Rossolillo: Here's what it's done with the revenue, you see this brief middle flat line, year-over-year flat line here in the early first half of 2020, and then it just continues its upward trajectory. We end up with this short squeeze late last year into early 2021, stock sells off, another short squeeze this past summer, and now we've sold off again, totally vicious cycle. What it's done to the valuation is we're sticking at about 19 1/2 trailing 12-month revenue. Not bad, it's certainly not the most expensive software tech stock I've seen out there.

Jeremy Bowman: I was just going to mention that the evaluation right now feels pretty average or even maybe below average for what we see in the SaaS sector. Every company is a little different and not all of Appian's revenue is coming from the cloud subscriptions because they got services too. But I want to mention too, what's funny about the stock. Up until that short squeeze, it was really a pretty steady upward growth story and then it wasn't. [laughs] Until then, the stock was really a steady grower. That's how the business has been behaving.

Nick Rossolillo: Right. Just for the sake of comparison, that competitor that CEO of Appian said they see more often than anyone else, Pegasystems, narrowed about nine times trailing 12-month sales. Then UiPath, strictly a software bots platform, so not as well-rounded a platform as Appian's vision to integrate those bots into a low-code, no-code development sandbox. But you can see Appian right there in the middle as far as valuation goes between the two, between Pegasystems, their legacy competitor, and then UiPath, which is much more of this AI, artificial intelligence and machine learning focus, so they fetch a higher valuation. UiPath had its IPO early this year, so some of these tech stocks that recently IPO'ed, they tend to run a bit hot for the first couple of years. On a historical basis though, Appian still isn't as cheap as it was a few years ago.

Nicholas Rossolillo owns shares of Appian. The Motley Fool owns shares of and recommends Appian. The Motley Fool has a disclosure policy.

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