The Appen Ltd (ASX: APX) share price has had a disappointing end to the week.
Although they have rebounded off their low for the day, the shares of the global leader in the development of high-quality, human annotated datasets for machine learning and artificial intelligence are down almost 3% to $12.40 in afternoon trade.
This decline means Appen’s shares are down 22.5% since peaking at $16.00 last year.
Is this a buying opportunity?
I think this pullback ought to be considered a buying opportunity for investors.
Based on its guidance for FY 2018 and prospects for the following year, I think Appen’s shares are great value.
In November Appen provided an update which revealed that it continued to experience strong demand for its services in the prior months. This led to a sharp increase in monthly revenues from existing projects from existing customers.
As a result, management raised its underlying EBITDA guidance to the range of $62 million to $65 million for FY 2018.
This was a notable increase on its previous guidance of $54 million to $59 million and will be a 120% to 131% increase on FY 2017’s result.
While I expect its growth to moderate in FY 2019, I believe its exposure to the fast-growing machine learning and artificial intelligence markets puts it in a strong position to deliver above-average earnings growth.
I’m not alone in believing this could be the case. A note out of UBS in November reveals that it expects Appen to achieve earnings per share of 39.4 cent in FY 2018 and then 49.7 cents in FY 2019.
Based on this forecast, Appen’s shares are currently priced at 25x FY 2019 earnings.
Overall, I think this makes Appen’s shares the best value out of the WAAAX group which includes WiseTech Global Ltd (ASX: WTC), Afterpay Touch Group Ltd (ASX: APT), Altium Limited (ASX: ALU) and Xero Limited (ASX: XRO).
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, 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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