Appian's Multiple And Fundamentals Are Mismatched, Goldman Says In Downgrade

Software developer Appian Corp APPN, which provides low-code software development platform as a service for organizations to develop applications, are poised to decline by nearly half over the next 12 months, according to Goldman Sachs.

The Analyst

Goldman Sachs analyst Jesse Hulsing downgraded Appian from Neutral to Sell and maintained a $20 12-month price target, representing 48-percent downside from current levels. That's in contrast to the 4-percent average downside Hulsing expects for his coverage universe.

The Thesis

Since Dec. 17, Appian shares have risen about 80 percent from $21 with no company-specific news or major changes in the macroeconomic environment, Hulsing said in a Wednesday note. (See the analyst's track record here.) 

The recent move is not justified, the analyst said.

"At 12x 2018 EV/Sales APPN is now among the most expensive stocks in our coverage on a sales and recurring revenue basis," Hulsing said. 

The analyst said he predicated his Sell thesis on the following: 

• Shares are historically expensive despite growth, margins and unit economics that are firmly in the middle-tier within the broader software universe.
• Customer acquisitions costs that are among the highest in the SaaS group.
• Challenging comparisons starting in the first quarter of 2018 that could potentially lead to slower billings growth relative to the second half of 2017.

Goldman remains positive on Appian's long-term opportunity and sees limited downside potential to calendar year 2018 and 2019 estimates. That said, valuation is likely to drive underperformance on a relative and absolute basis over the next 12 months, Hulsing said. 

The Price Action

Appian shares are up about 140 percent over the past year.

Shares of the company were trading down 6.78 percent at $35.83 at the time of publication. 

Related Links:

Earnings Season: Your Guide To When Each Sector Reports

Mizuho: After Industry Consolidation, Cloudera Emerges As A Buy