Market Participants Recognise Appian Corporation's (NASDAQ:APPN) Revenues Pushing Shares 27% Higher

Appian Corporation (NASDAQ:APPN) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 31% over that time.

Even after such a large jump in price, there still wouldn't be many who think Appian's price-to-sales (or "P/S") ratio of 4.6x is worth a mention when the median P/S in the United States' Software industry is similar at about 4.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Appian

What Does Appian's P/S Mean For Shareholders?

There hasn't been much to differentiate Appian's and the industry's revenue growth lately. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Appian.

How Is Appian's Revenue Growth Trending?

In order to justify its P/S ratio, Appian would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 15% last year. The latest three year period has also seen an excellent 78% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 14% per year during the coming three years according to the eight analysts following the company. That's shaping up to be similar to the 15% per annum growth forecast for the broader industry.

In light of this, it's understandable that Appian's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What Does Appian's P/S Mean For Investors?

Appian's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A Appian's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Software industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

You always need to take note of risks, for example - Appian has 1 warning sign we think you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com