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Is Appen Ltd (ASX:APX) the best ASX growth share right now?

With all the fears around house prices, rising interest rates and oil prices that often dominate the headlines, it can be hard to remember that there are plenty of exciting companies trading on the ASX right now.

Companies such as Altium Limited (ASX: ALU)A2 Milk Company Ltd (ASX: A2M) and Afterpay Touch Group Ltd (ASX: APT) have provided their shareholders with market crushing returns well over 100% in the last year alone.

My contender however for the most exciting company on the ASX right now is Appen Ltd (ASX: APX). Here are a few reasons why:

  • Fast growing emerging industry. As a leading machine learning and artificial intelligence data set provider, Appen is exposed to one of the most exciting emerging trends in the world right now. Whilst AI and machine learning sometimes sound like buzz words people just say to sound smart, there is no doubt in my mind that it’s going to be a significantly larger industry in the future and companies such as Appen are well positioned to profit from it.
  • Game changing acquisition. The acquisition of the California based platform Leapforce could be a game changer for Appen. In the company’s own words, it “establishes Appen as the world’s leading provider of search relevance services”.
  • High growth. Appen is growing fast and with an FY 2017 revenue growth rate of 50%, it’s no wonder that the market is bidding up its share price.

Risks

At a price to sales ratio of 6, Appen shares don’t come cheap although on that basis they are more affordable than some high growth US tech stocks.

One key concern for me is the fact that 86% of its FY 2017 revenue came from just 5 major customers. If Appen was to lose one of them, it could have significant consequences for its share price.

Foolish Takeaway

I think there is plenty to like about Appen and it’s worth buying for the long term, even after the latest increase in its share price. If you would like to learn about the AI revolution, this report is a great place to start.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya.

The Motley Fool Australia owns shares of A2 Milk, AFTERPAY T FPO, Altium, and Appen Ltd. 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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