Software provider Appian has lots of upsides

The Motley Fool Take

Appian’s share price was recently down some 74% from its 52-week high, presenting an attractive entry point for risk-tolerant investors.

Appian specializes in “low-code” software that helps businesses build apps and workflows for themselves without having to hire in-house developers. Its customers recently included Cigna, Major League Baseball, Merck & Co., T-Mobile US and the U.S. Air Force.

In Appian’s third quarter, total revenue increased 20% year over year to $92.4 million, driven by a 32% increase in the subscription revenue segment, to $67.2 million. The bottom line was in the red, though, as Appian continues to spend heavily to support expansion. But with over $188 million in cash and short-term investments on the balance sheet, the company can afford this strategy.

Appian’s subscriptions are growing in terms of the number of customers and how much they’re willing to spend. Its recently announced 116% net revenue retention rate for cloud subscribers means the average organization that’s been with Appian for a year is now spending 16% more than it was a year ago.

Appian stock is not for the risk-averse, as the company is not yet profitable. But with a recent market valuation of around $4 billion, the company has a lot of room for growth. (The Motley Fool owns shares of and has recommended Appian.)

Ask the Fool

From N.M. in Frankfort, Ky.: When a company buys back some of its own shares, what happens to the stock value?

The Fool responds: It depends. Shareholders can benefit when companies repurchase shares — if those shares are undervalued. Many companies repurchase their shares when they’re overvalued, though, which wastes money.

Imagine Scruffy’s Chicken Shack is worth $100 and has 100 shares outstanding — each share tied to a dollar of value. If Scruffy’s buys back (essentially retires) 25 shares, 75 will remain, and each will have a greater proportional claim on the company’s future earnings.

Since earnings per share are one of the metrics used to judge “value,” fewer shares usually mean the value rises.

From L.R., Nampa, Idaho: When we buy shares of stock in a company, where does our money actually go?

The Fool responds: You might assume that your dollars go to the company, but you’d be wrong. A company collects money for its publicly traded shares when it first issues them to investors via an initial public offering. After the IPO, the shares will trade on an exchange, bought and sold by investors through intermediaries who get a cut of each transaction. Companies do sometimes issue “secondary” offerings of stock, collecting money when those new shares are released onto the market. But after that, the shares are again simply traded between investors.

It’s much like collectible comics. If you buy a comic book when it’s published, the publisher gets your money. But after that, the comic book might be traded between collectors, with its value going up or down depending on what they think it’s worth, based on supply and demand. The publisher, like the stock-issuing company, gets no more money from the comic.

The Fool’s School

Throughout the course of our lives, various happy and sad events have tax implications that we shouldn’t neglect.

For starters, when starting a new job, fill out your W-4 form appropriately to avoid having too much or too little withheld from your paycheck. If you have significant other income (perhaps from rental properties or dividends), you might have more withheld in anticipation of a bigger tax bite. If you expect significant deductions and a smaller tax bill, you might want less withheld.

When changing jobs, don’t cash out your 401(k) account if you can help it. Even if your account is small, move the money in it into your next employer’s plan or roll it into an IRA so that it can keep growing for you over time. Most of us will need all the retirement assets we can amass.

If your marital status changes, so should your W-4 form. You’ll also need to figure out whether to file your tax returns jointly or separately. If both of you work and you file your returns jointly, as most couples do, you might get hit by the “marriage penalty,” resulting in more taxes paid than if you’d both filed as single people. Still, filing jointly is best for most couples. Tax-prep software or online calculators can help you determine the best way to file your returns.

If you divorce, update that W-4 form again. Remember that when assets are divided, so are the responsibilities for taxes associated with them. Assets that are sold can result in capital gains — and taxes on them. Taxation related to alimony has changed in recent years, so read up on the topic (or consult a tax pro) to determine whether your alimony paid is deductible or alimony received is to be counted as taxable income.

Other life events, such as the birth or adoption of a child, the purchase or sale of a home, educational expenses, and inheritances and retirement have tax implications. Learn more at IRS.gov, or consult a tax professional.

My Dumbest Investment

From O.P., online: My dumbest investment? Cannabis stocks — they just did me dirty. I’ve held on, though, because it’s not a loss until you sell.

The Fool responds: Successful investing involves buying into great businesses at the right time — when they’re undervalued — and then hanging on.

Many investors are reasonably assuming that cannabis stocks are very promising, as the legalization of marijuana is becoming more widespread in the United States and may even happen nationwide. But profiting off of the burgeoning industry isn’t necessarily that easy.

The cannabis industry is still developing, and it’s not yet clear which cannabis companies will end up dominant over the long run. If you want to invest in cannabis but aren’t sure which companies will perform best, consider shares of an exchange-traded fund that focuses on it. (ETFs are funds that trade like stocks; you can buy into them through a brokerage account.)

There are many cannabis-focused ETFs, such as the AdvisorShares Pure US Cannabis ETF, which recently spread its assets across several dozen different companies, all based in the U.S. The fund has been around since September 2020 and has an expense ratio (annual fee) of 0.73%.

You’re right that you’ve suffered no loss if you haven’t sold yet. If you’re bullish on the future of cannabis, reassess your stocks and perhaps hang on. If another sector seems more promising, move your money.

Who am I?

I trace my roots back to my founding as a private equity business in 2001. Since then, I or my affiliates have invested in scores of franchised and multilocation brands that generate a total of $61 billion in annual revenue. Together, they have 66,000 locations in 50 states and 89 countries. I recently boasted $33 billion in assets under management. Names in my portfolio include Arby’s, Auntie Anne’s, Basecamp Fitness, Baskin-Robbins, Buffalo Wild Wings, Carvel, Cinnabon, Dunkin’, Jamba, Jimmy Johns, Maaco, Massage Envy, Merry Maids, Sonic and The Cheesecake Factory. I take my name from Ayn Rand’s writings. Who am I?

Can’t remember last week’s question? Find it here.

Last week’s trivia answer: Tupperware Brands


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