What happened
Shares of low-code automation software platform Appian (APPN -3.09%) collapsed in an avalanche of selling Wednesday. As of 11:30 a.m. ET, Appian stock is down 6.5%.
You can blame Barclays Capital for that.
Image source: Getty Images.
So what
Barclays has been an Appian skeptic for some time, it should be noted. Prior to today, the analyst rated Appian stock underweight (i.e., sell) with a $90 price target. The banker continues to see Appian as a sell today. What's changed is its price target -- because this morning, Barclays cut that target nearly in half, and says Appian stock is worth only $47 a share.
Appian has been a fine growth stock, you see. Last quarter, sales at the software company were up a solid 20%, and Barclays agrees that there are "no issues" with demand for the company's product. What worries this analyst is simply that it seems investors are no longer willing to pay insane multiples to sales for profitless software companies like Appian.
Now what
Because no matter how fast Appian is growing -- and sales have tripled over the past five years -- the valuation on this stock truly does look unhinged.
At its current $5 billion market capitalization, investors are paying more than 14 times sales for a company that has never generated positive free cash flow, that has never earned a profit, and that, according to analysts polled by S&P Global Market Intelligence, won't even begin to be profitable before 2025 at the earliest.
As investors began to question the attractiveness of buying revenue for their own sake, and ignoring profitability entirely, Appian stock has come crashing down, losing about 75% of its value over the past year. With the stock still unprofitable today, there's really no good reason to expect the selling to stop.
The logical move, says Barclays, is therefore to sell Appian stock -- and today, investors seem to agree with that advice.
