Are you too late to buy shares of this red-hot tech company?

When a company’s share price rises strongly in a short space of time, the stock can become easy to ignore. After all, the shares have already soared in price and all the big gains are gone, so what’s the point in buying in now, right?

Well, sometimes that can be the case: momentum can certainly play a role in the massive gains enjoyed by some companies, often rendering them overly expensive. But often it is worth taking a closer look at why the market has become so bullish on a company.

Case in point, Appen Ltd (ASX: APX).

Appen is a relative newcomer to the ASX boards, having only listed its shares on the market in 2015. The shares closed at just 63 cents on their first day of trade, and have since rocketed to $2.44 as at yesterday’s close. That represents a whopping 287% gain in just 18 months, turning an initial $5,000 investment into just over $19,300.

But despite that incredible rally, Appen’s shares still appear to trade at a reasonable level. The company recorded diluted earnings per share (EPS) of 8.55 cents for the 2015 fiscal year, putting it on a trailing price-earnings ratio of 28.5x.

However, the company recently noted that full-year growth is trending to “high teen percentages and above” and that in itself is based on an Australian dollar being worth US76 cents, compared to its current rate of around US74.7 cents. As the company generates a large portion of its earnings in the United States, a lower Australian dollar is better for Appen’s bottom line, which suggests growth could be better than that forecast by the business.

Assuming that EPS can grow by 20% (which could be considered conservative based on the company’s comments and expectations the Australian dollar has further to fall), Appen’s forward price-earnings ratio could be close to 23.8x. It’s still not necessarily cheap, but not bad considering the group’s growth potential.

Indeed, Appen provides language and voice recognition services. While its linguists work on Skype Translator, its services are also used in various other applications including car GPS and other in-vehicle speed technology. It covers over 130 countries and 180 languages and is thus relied upon by some of the world’s leading companies and organisations to expand into new global markets.

So although Appen’s share price has skyrocketed over the last 18 months, it’s by no means a company you should ignore.

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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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