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Why the Appen share price hit a record high today

The Appen Ltd (ASX: APX) share price hit a record high of $24.74 this morning and is now up around 33% since releasing its better-than-expected profit report for the six-month period ending December 31 2018.

For the period the data-led artificial intelligence and language services business grew its adjusted profit 148% to $49 million on the back of 119% growth in revenue to $364.3 million.

The company now has a market value around $2.62 billion which might sound a lot, but it is actually “relatively” modestly priced on conventional valuation multiples such as price to sales ratios, when compared to other tech market darlings such as WiseTech Global Ltd (ASX: WTC) or Altium Limited (ASX: ALU).

I bought some Appen shares on the day it reported confident that the stock had room to run higher from a valuation around 16% beneath today’s and would not be surprised to see the stock climb a little more out to May 2019 when we may see a trading update at the firm’s AGM.

Another stock to hit a record high today that I also bought last month is the a2 Milk Company Ltd (ASX: A2m), I also think it has room to run higher and is likely to beat the market’s returns over say a 1 to 3 year period from here.

However, investors should remember all of the above ‘high growth’ businesses are vulnerable to huge share price falls on the back of a single operational misstep.

Therefore they should only ever make up a small part (<10% in any single stock) of a balanced portfolio in my opinion. However it’s fair to say I still rate Appen and the a2 Milk Company as businesses to buy today.

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Motley Fool contributor Tom Richardson owns shares of A2 Milk, Altium, and Appen Ltd.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of A2 Milk, Altium, Appen Ltd, and WiseTech Global. 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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