The share price of technology company Appen Ltd (ASX: APX) rose 5.19% to $12.56 in Thursday trade on the back of a historic overnight trading session in the United States which saw a record point gain from the Dow Jones.
One of the major catalysts for the overnight bounce was a report from Mastercard which revealed that sales for the holiday shopping season in the United States have increased by 5.1% to US$850 billion, the strongest growth rate in 6 years.
The tech-heavy NASDAQ also rose by 5.8%, led by the FANG stocks of Facebook, Amazon, Netflix, and Google (Alphabet) who all outperformed the index with impressive gains of 8.2%, 9.5%, 8.5%, and 6.4% respectively.
The strong lead on Wall Street has seen Appen and other Australian tech stocks Afterpay Touch Group Ltd (ASX: APT) and WiseTech Global Ltd (ASX: WTC) follow suit with all 3 companies comfortably outperforming the S&P/ASX 200 Index (ASX: XJO) that has only gained 1.88% today.
Appen is a global leader in developing high-quality human annotated datasets. These datasets are used in the growing fields of machine learning and artificial intelligence with the company servicing some of the world’s largest technology companies such as Alphabet and Facebook.
Shares of Appen have risen by 53% over the last 12 months on the back of growing earnings and upgrades to FY18 guidance. In November, the company announced to the market that it now expects underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) for the year ending 31 December 2018 to fall within the range of $62 million to $65 million at an AUD/USD exchange rate of 80 cents.
November’s announcement represented an earnings upgrade of 12.4% at the midpoint after the company had forecast for underlying EBITDA to fall within the range of $54 million to $59 million in August after releasing its interim results.
All eyes will now turn towards the release of Appen’s FY18 earnings report in February and its outlook for FY19. At current prices, shares of Appen are trading for around 25 times FY19 earnings. Whilst this valuation is well above the market average it is not a particularly demanding valuation if the company can grow earnings by over 30%.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, Mastercard, and Netflix. The Motley Fool Australia owns shares of AFTERPAY T FPO, Appen Ltd, and WiseTech Global. The Motley Fool Australia has recommended Alphabet (A shares), Amazon, Facebook, Mastercard, and Netflix. 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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