Why Appen Limited shares are going gangbusters

Shares of Appen Limited (ASX: APX) skyrocketed today after the group’s annual general meeting. While the shares are currently trading 14% higher at $2.20, they did rise as much as 18.1% to a new all-time peak of $2.28.

Considering the business only listed its shares on the ASX in 2015 with a market capitalisation around $210 million, Appen isn’t a household name. The business itself provides language and voice recognition services for use in applications such as car GPS and other in-vehicle speech technology. Its linguists and translators also worked on Skype Translator.

Skype Translator, which is an application that was developed by Microsoft, basically enables speakers of two different languages to communicate in real time over the Skype network. The fact that such an established business relied on Appen for this project is certainly a good sign for investors.

Compared to the prior year, the company grew its revenue and adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) by 62% and 106% in 2015, respectively. It also declared a fully franked 3 cents per share final dividend, taking the total dividend for the year to 4.2 cents.

Meanwhile, it also improved its customer diversification through the year, reducing some of the risks facing the business, with the weaker Australian dollar also playing a role in the strong results.

The reason for today’s gain, however, appears to have been sparked by the outlook provided by the group. It said it had orders in hand over $75 million at the end of April, with full-year outlook for earnings growth trending to “high teen percentages and above“.

The beautiful thing about that forecast is it appears to be based on an Australian dollar at US76 cents. Granted, there is no way of knowing for sure where the Australian dollar will go in the near-term, but it’s currently sitting at just US72.2 cents, and most experts suggest it will fall further.

As the company generates most of its revenue and earnings in the United States, a weaker dollar is good for local investors. Thus, investors have reason to hope for a better result than is currently being forecast by the business.

Appen is certainly a company worth keeping an eye on, and deserves a position at the top of your watchlist. Despite its incredible run over the last 12 months, the shares don’t appear excessively valued with a price-earnings of ~ 25x.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Microsoft. Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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