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Why Appian Stock Was Falling Today

What happened

Shares of Appian (NASDAQ: APPN) were pulling back today as the high-growth tech stock was swept up in the market sell-off in response to rising interest rates.

Appian, which makes low-code cloud software, finished the day down 11.4%.

Appian CEO Matt Calkins. Image source: Appian.

So what

Stocks plunged broadly as investors were spooked by rising Treasury note yields. The 10-year T-note rose again today, increasing 3.4% to close at 1.53%, its highest level since June.

While that is still low based on historical standards, Treasury yields have a direct relationship with stock prices as investors tend to rotate out of stocks and into bonds as interest rates increase and yields get better. The perception among some that the stock market is already overvalued might be accelerating this rotation as the S&P 500 price-to-earnings ratio is currently 34, compared to its historical average at 16.

In the case of growth stocks like Appian, the connection between interest rates and valuation is even more immediate. That's because these are long-duration assets, meaning the valuation of a company like Appian is based on earnings in the distant future. When interest rates rise, these long-dated earnings become less valuable as the discount rate (used in the discounted cash flow model) rises along with interest rates. In other words, as yields rise, investors have better options than to wait for earnings to materialize in high-priced tech stocks.

As an unprofitable company trading at a P/E ratio above 20, Appian is one of many tech stocks being hammered by today's sell-off.

Now what

Appian will have a chance to shift the spotlight back onto the business next Monday when the company holds its first ever Investor Day, sharing updates on the company's strategy, financials, and key business initiatives, among other areas.

Depending on what happens at the conference, which could include things like updated guidance, the stock could recover today's losses.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Appian. The Motley Fool has a disclosure policy.


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