Why Appen Ltd is printing record highs

Source: Appen

The share price of technology company Appen Ltd (ASX:APX) rose to a new record high of $11.13 during Monday’s trading session.

Appen is a global leader in developing high-quality human annotated datasets that are used for machine learning and artificial intelligence. The company’s share price has risen over 13% since the beginning of last week despite no announcements being made. The rising share price might be explained by the recent fall of the Australian dollar that could boost the company’s earnings as Appen earned 76% of its revenues in the United States during 2017.

Full year outlook

In February, Appen’s management projected underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for 2018 to be within the range of $50-$55 million at an AUD/USD exchange rate of 80 cents. A falling Australian dollar increases the bottom line of Australian businesses when converted back into Australian dollars. With the Australian dollar currently trading around the 75 cents level and with the interest rate differential projected to widen in 2018, there is room for further currency depreciation.

The company’s AGM is scheduled for May 18 which could see a revised earnings outlook as the market currently appears to be pricing in higher earnings.

Foolish takeaway

Appen is well positioned in a fast growing market servicing some of the world’s leading technology companies, automakers and governments. The company delivered an excellent full year result in February, posting revenue growth of 50% to $166.6 million. Margins expanded from 15.6% to 16.9% that resulted in underlying EBITDA rising 62% to $28.1 million. The US$80 million acquisition of competitor Leapforce in December is expected to increase earnings per share by at least 35% on an underlying basis. The high growth in Appen’s underlying business in conjunction with the Leapforce purchase sees its share price trade at a premium valuation multiple of roughly 34 times forward earnings.

Appen remains one of the best companies in the thriving technology sector on the Australian market alongside other companies such as WiseTech Global Ltd (ASX: WTC) and Xero Limited (ASX: XRO) who have also risen strongly over the last several trading sessions.

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Motley Fool contributor Tim Katavic owns shares of Appen Ltd. The Motley Fool Australia owns shares of Appen Ltd, WiseTech Global, and Xero. 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 Scott Phillips.

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