Is AppFolio, Inc. (NASDAQ:APPF) Potentially Undervalued?

AppFolio, Inc. (NASDAQ:APPF), is not the largest company out there, but it led the NASDAQGM gainers with a relatively large price hike in the past couple of weeks. The company is inching closer to its yearly highs following the recent share price climb. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine AppFolio’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

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Is AppFolio Still Cheap?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that AppFolio’s ratio of 45.94x is trading slightly above its industry peers’ ratio of 42.94x, which means if you buy AppFolio today, you’d be paying a relatively reasonable price for it. And if you believe that AppFolio should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. In addition to this, it seems like AppFolio’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

Check out our latest analysis for AppFolio

Can we expect growth from AppFolio?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Though in the case of AppFolio, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? Currently, APPF appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on APPF, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on APPF for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on APPF should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing AppFolio at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of AppFolio.

If you are no longer interested in AppFolio, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.