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Why I think Appen Ltd looks a buy at this share price

The Appen Ltd (ASX: APX) share price gained almost 200 per cent in the past year and there are signs it could continue to deliver strong returns in 2018.

Appen utilises data sets and machine learning to provide services that are aimed at improving search engines, social media platforms, eCommerce sites and fraud detection operations, among others.

The company has established a global presence and continues to expand.

Appen recently acquired California-based Leapforce and Raterlabs Inc which facilitate working from home services that seek to evaluate search engine results.

Leapforce was set to generate US$58 million in revenue and US$13.6 million in EBITDA in 2017.

Appen stated that it expects the deal to be at least 35 per cent accretive to underlying earnings per share.

That would add to already impressive results.

Appen reported revenue for the first half of 2017 of $74.1 million, an increase of 39 per cent on the prior corresponding period, and net profit after tax of $8.1 million, up 50 per cent.

The company, with a market value of $877 million, also stated that it expects full-year EBITDA for the year ending 31 December 2017 to be as high as 50 per cent above the prior year’s results.

Based on Appen’s EBITDA of $17.2 million for the year ending 31 December 2016, that could come in at around $25.8 million.

Appen’s shares may appear pricey, changing hands for more than 60x trailing earnings.

But Appen is in different league to most ASX tech companies, particularly when stacked against others with a hand in the artificial intelligence space such a Brainchip Holdings Ltd (ASX: BRN) and Bigtincan Holdings Ltd (ASX: BTH).

And although some analysts are not so keen on Appen, it still looks like it has a lot of potential.

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Motley Fool contributor Steve Holland has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended BIGTINCAN FPO. 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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