Home Discount rate Why Appian Stock Was Sinking Today

Why Appian Stock Was Sinking Today


What happened

Shares of Appian (APPN -6.82%) were lower today, in line with a broad sell-off in growth stocks after the Federal Reserve raised the fed funds rate by 75 basis points to 3%-3.25% yesterday.

While there was no company-specific news on Appian today, rising interest rates and comments from Fed Chairman Jerome Powell that rate hikes will persist until further notice. until inflation is brought under control, pushed Appian shares lower.

As of 2:03 p.m. ET, the stock was down 6.6%.

So what

As an unprofitable growth stock, Appian is more interest rate sensitive than most stocks. This is because as interest rates rise, the discount rate of its financial model also rises, which means that profits in the distant future are worth less.

Appian shares could also fall as fears of a recession rise after yesterday’s announcement, with Powell essentially saying the central bank would continue to hike rates even if it leads to higher unemployment and a slowdown. economy.

As a maker of low-code software for large enterprises, Appian is sensitive to the economic cycle, although CEO Matt Calkins said his company was ready for an economic downturn as it prepared a sales pitch focused on the efficiency and cost savings, and it also acquired a process extraction company, Lana Labs, last year to provide upstream capabilities to its customers. Process mining, which helps make workflows more efficient, is a natural step before implementing low-code workflows.

Now what

Although the macroeconomic environment may present challenges to both Appian’s business and the stock price, the company received some good news last week after a court in Virginia issued a final judgment. in its $2.036 billion award in a trade secret theft case by its main competitor, Pegasystems.

Although the appeals process could drag on for years, investors shouldn’t ignore the price, especially since Appian’s market capitalization is now just $3.1 billion, meaning the he company is valued at just $1 billion until the verdict is overturned. While investors should keep an eye on rising interest rates, this reward should help put a floor under the headline.

Jeremy Bowman has no position in the stocks mentioned. The Motley Fool fills positions and recommends Appian. The Motley Fool recommends Pegasystems. The Motley Fool has a disclosure policy.