Appian Has Promise, But Stock Too Expensive At This Price

Canaccord Genuity initiated coverage of Appian Corp (NASDAQ: APPN) at Hold, given its expectations that the stock is too pricey. This is despite the firm believing that the company's business is promising.

Break-Even Cash Flow Sooner-Than-Expected

The firm noted that Appian has accomplished the difficult task of enabling in-house developers write in-house developers write in-depth applications with relative ease, helping to improve productivity. Accordingly, the firm believes the company's revenue growth will accelerate into the low 20-percent range over the next few years.

Therefore, the firm expects the company to reach break-even free cash flow a couple of quarters sooner than expected, with the current timeframe for breaking even at early 2019.

Canaccord analysts led by Richard Davis highlighted four vectors that it finds compelling about Appian:

1. Universal preference of organizations to be software businesses, with desire to be more flexible and responsive to customers.
2. Difficulty in digital transformation, as demand for new applications exceed the capability to deliver it.
3. Appian's success in winning 280 customers by developing low-code applications development tools, which can drive productivity growth of six to 20 times over traditional application development methodologies.
4. The firm's belief that the introduction of AI/ML into software will enable companies to break the bonds of strict workflow that is the basis of cloud applications now-a-days.

AI/ML Big Opportunity

Canaccord believes AI/ML represents the seedlings from which some very big companies will emerge in the next generation of software, with those failing to embed these into their architecture unable to survive the platform shift.

"The fact that Appian has a significant effort, and thought leadership among low-code firms, creates significant upside optionality in terms of this company scaling to be very big over the next decade," according to Davis.

Valuation Behind Hold Rating

As such, Canaccord initiated Appian at Hold, with a $18 price target, which is below its closing price of $18.22 last Friday.

The firm indicated that there could be upside to its estimates, but cannot yet assign a Buy rating, given the shares 52 percent ramp from its IPO pricing.

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