Why Appian Swooned 10% on Wednesday

MarketsMotley Fool

What happened

Shares of Appian (NASDAQ: APPN), a leader in the shift toward low-code software development, fell 10.1% on Wednesday.

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There wasn't a single press release, SEC filing, or analyst downgrade to justify the double-digit bruising. Since the tech-heavy Nasdaq also dropped more than 4% on Wednesday, the move is likely attributable to normal market volatility.

So what

Software-as-a-service companies like Appian have been red-hot for many years. The huge outperformance has caused valuation multiples of many cloud computing companies to continually expand. That fact tends to amp up a stock's volatility, especially when the total stock market takes a sudden turn for the worse. Since Appian was trading for about eight times sales on Wednesday, the double-digit decline shouldn't be too surprising given the huge move in the market.

Now what

Investors who can look beyond the share-price volatility appear to have plenty of reasons to remain bullish. Last quarter, Appian's revenue grew 39% and its subscription revenue retention rate remained robust at 119%. The company also took advantage of its premium stock valuation in August by selling 2 million shares of stock in a secondary offering. It nabbed a price of $35.15 per share, which is 40% higher than where shares currently trade today. While some of the proceeds are going to insiders, the cash injection should easily enable the company to continue funding its small quarterly losses as it invests for growth.

In other words, if you were bullish on Appian's stock yesterday, I see no reason to change your tune today.

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Brian Feroldi owns shares of Appian. The Motley Fool owns shares of and recommends Appian. The Motley Fool has a disclosure policy.