In This Article:
- By GF Value
The stock of Appian (NAS:APPN, 30-year Financials) gives every indication of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $90.96 per share and the market cap of $6.4 billion, Appian stock appears to be significantly overvalued. GF Value for Appian is shown in the chart below.
Because Appian is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 7.3% over the past five years.
Link: These companies may deliever higher future returns at reduced risk.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Appian has a cash-to-debt ratio of 4.00, which is in the middle range of the companies in Software industry. The overall financial strength of Appian is 6 out of 10, which indicates that the financial strength of Appian is fair. This is the debt and cash of Appian over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Appian has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $314.6 million and loss of $0.5 a share. Its operating margin is -12.65%, which ranks worse than 72% of the companies in Software industry. Overall, GuruFocus ranks the profitability of Appian at 3 out of 10, which indicates poor profitability. This is the revenue and net income of Appian over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Appian is 7.3%, which ranks in the middle range of the companies in Software industry. The 3-year average EBITDA growth rate is 13.3%, which ranks in the middle range of the companies in Software industry.