Here’s why the Appen Ltd share price has gone gangbusters in 2016

So far in 2016 the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has fought hard to carve out a solid 3.5% gain. Considering the Brexit and the meltdown in the markets at the start of the year this is quite an achievement from the index.

But compared to one exciting tech share the S&P/ASX 200’s 3.5% gain is nothing short of trivial. That tech share is language and voice recognition services provider Appen Ltd (ASX: APX). Year to date its share price has gone absolutely gangbusters and provided its shareholders with a return of around 94%.

But despite these strong gains already this year I still feel there is a great long-term investment opportunity here.

One of the first things I like to point out about Appen is its incredibly strong balance sheet. Unlike many tech shares that list on the ASX, Appen is already profitable and has zero debt on its balance sheet.

The next thing that draws me to the company is its clientele. One of its major customers is Microsoft. It uses Appen’s services for a number of its products including Skype and its search engine Bing. Pleasingly the company announced earlier this month that it had successfully renewed a number of contracts with the US tech giant.

It advised that the contracts cover a range of Appen products and services designed to improve the interaction between computers and humans. Management explained that “by providing critical enhanced data to machine learning algorithms, Appen helps tune these computer applications to process and understand natural language and relevance as well as humans.”

As well as Microsoft, it is believed that fellow US tech giant Facebook is also a client. In April the company announced that it has been awarded a new contract to provide enhanced data services to the world’s largest global photo sharing platform. Although it didn’t release the name of the company, the world’s largest global photo sharing platform is Facebook’s Instagram.

In my opinion the fact that Appen’s technology is attracting companies of this stature, demonstrates just what an exciting future this growing Australian company has. It therefore comes as little surprise to see its share price rally over 94% so far in 2016 as investors fight to get their hands on its shares.

As the world becomes increasingly globalised, the need for companies to personalise services for their customers is becoming evermore important. I believe Appen is positioned to profit from this and would make for an excellent long-term investment.

At 34x trailing earnings its shares may look a little on the expensive side. But compared to other exciting ASX tech shares like Aconex Ltd (ASX: ACX) and XERO FPO NZX (ASX: XRO), I believe it is great value considering its strong growth prospects.

Lastly, if you would like to add Appen to your portfolio I would highly recommend checking to see if you own one of these three rotten ASX shares first. Each could be doing more harm than good to your portfolio and now might be the perfect time to swap them out.

3 Rotten Shares to Sell, and 1 to Buy Today

After a double-digit rally for the ASX since 2016 lows, investors should be on high alert. You'll find a full rundown below of 3 shares we think you should avoid today plus one top pick worth buying, even if the market turns south and the RBA keeps rates at an "emergency low." Simply click here to uncover these stocks.

Motley Fool contributor James Mickleboro 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.