What happened

Shares of Appian (APPN -9.77%) have pulled back this year in line with a broader sell-off in software-as-a-service (SaaS) stocks. Though the sector is generally growing quickly, many SaaS stocks are unprofitable and in a high-interest rate environment, investors are turning away long-duration stocks, or stocks that are expected to produce earnings further into the future, since those profits are not worth as much when inflation and interest rates are high. 

Appian's performance has remained strong and consistent this year, but the broad-market headwinds weighed on the stock. According to data from S&P Global Market Intelligence, shares fell 27% through the first half of the year.

As the chart below shows, the stock was volatile on a week-to-week basis but generally tracked with the S&P 500.

APPN Chart

APPN data by YCharts.

So what

Appian was among the SaaS stocks that soared during the pandemic, helped by a short squeeze, and its valuation stretched to a price-to-sales ratio of around 50 at one point. Since then, the stock has come crashing down, but the company, which specializes in low-code software, is still delivering consistent and reliable growth as it's the largest pure-play, low-code, cloud software company.

In the fourth quarter, cloud-subscription revenue, the primary metric the company is focused on, grew 39% to $51.2 million, and overall revenue increased 29% to $105 million, which easily beat estimates. On the bottom line, adjusted loss per share widened from $0.03 to $0.16, but that was better than expectations at a loss of $0.23.

The stock jumped on the news, though it remained volatile in the subsequent weeks.

Appian delivered another round of solid results in the first quarter with cloud-subscription revenue up 37% to $53.4 million, and overall revenue increased 29% to $114.3 million, ahead of estimates. Adjusted loss per share was $0.06, which was even with the quarter a year ago and ahead of expectations at $0.13. Investors mostly shrugged off the news as the market was focused on the Fed's rate hike that day.

Just a few days later, Appian was awarded a $2 billion judgment in its civil suit against rival Pegasystems for theft of trade secrets. The case is expected to be appealed, but it represents the biggest award ever in Viriginia state court history and would make a fundamental difference to Appian's valuation as the stock has a market cap of $3.35 billion. The stock jumped 39% on the news.

Now what

With the economy slowing and stocks in a bear market, Appian CEO Matt Calkins has been anticipating a recession for nearly a year now, and the company has prepared for it with its acquisition of process mining company Lana Labs last year. It also expects to hire aggressively as the labor market for engineers softens. 

Low-code software is also expected to take off this decade, making Appian an attractive long-term pick at its current price.