Is AppFolio (APPF) Appealing After Recent Share Price Weakness And Mixed Valuation Signals

• If you are wondering whether AppFolio's current share price lines up with its underlying value, you are not alone. This article is designed to help you frame that question clearly.
• The stock closed at US$166.26, with returns of a 1.5% decline over 7 days, a 24.2% decline over 30 days, a 27.8% decline year to date, and a 21.3% decline over 1 year, while the 3 year and 5 year returns sit at 25.9% and 23.3% respectively. These figures can change how investors think about both upside potential and risk.
• Recent coverage of AppFolio has focused on its role as a software provider in the property management space and how that positioning fits into longer term digital adoption trends. This context is important because it helps explain why the stock can experience sharp moves as expectations around the business model and sector sentiment shift.
• Right now, AppFolio has a valuation score of 3 out of 6, which means it screens as undervalued on half of the checks we run. Next we will look at how different valuation approaches line up on this score before finishing with an approach that can give you an even clearer view of value.

Find out why AppFolio's -21.3% return over the last year is lagging behind its peers.

Approach 1: AppFolio Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes estimates of the cash a business could generate in the future and discounts those cash flows back to today to arrive at an estimate of what the company might be worth now.

For AppFolio, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flows reported and projected in $. The latest twelve month free cash flow is about $231 million. Analysts provide explicit forecasts out to 2027, with Simply Wall St extrapolating further out to 2035. On these projections, free cash flow in 2035 is estimated at about $580 million.

Pulling these cash flows together and discounting them produces an estimated intrinsic value of about $227.24 per share, compared with the recent share price of $166.26. That implies the shares trade at a 26.8% discount to this DCF estimate. On this model the stock screens as undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests AppFolio is undervalued by 26.8%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for AppFolio.

Approach 2: AppFolio Price vs Earnings

For a profitable company like AppFolio, the P/E ratio is a useful way to think about value because it links what you pay today to the earnings the business is already generating. Investors usually accept a higher P/E when they expect stronger growth or see less risk, and a lower P/E when growth expectations are more modest or the risk profile is higher.

AppFolio currently trades on a P/E of 42.46x. That sits above the Software industry average P/E of 24.24x and also above the peer group average of 20.15x, so on simple comparisons the market is putting a higher price on each dollar of AppFolio's earnings.

Simply Wall St's Fair Ratio framework tries to refine that view. It estimates what a P/E might look like after considering factors such as earnings growth, profit margins, industry, market cap and risk. For AppFolio, the Fair Ratio comes out at 31.13x, which is lower than the current P/E of 42.46x. On this approach, the shares screen as overvalued relative to what would be suggested by those fundamentals.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your AppFolio Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. These let you attach a clear story about AppFolio's future to your own forecast for revenue, earnings, margins and fair value, then compare that fair value to the current price to decide whether you see the stock as attractive or expensive.

A Narrative is simply your view of how the business evolves, written out as a story and backed by numbers. Instead of only looking at a P/E or DCF output, you connect what you believe about AppFolio's AI tools, resident services and property management market to a specific forecast and a resulting fair value.

On Simply Wall St, Narratives are available on the Community page and used by millions of investors. They update automatically when new information such as news, earnings or guidance is added, so your fair value view can stay aligned with the latest data without you rebuilding a model from scratch.

For example, one AppFolio Narrative on the optimistic side uses a fair value of US$300.00, while a more cautious Narrative comes in at US$186.69. By comparing those with the current share price you can quickly see which story, and which fair value range, feels closer to your own expectations.

Do you think there's more to the story for AppFolio? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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