The Appen Ltd (ASX: APX) share price returned from its trading halt on Tuesday and tumbled 9% lower to $22.14.
Despite this decline the shares of the global leader in the development of high-quality, human annotated datasets for machine learning and artificial intelligence are still up 72.5% since the start of the year.
Is it too late to buy Appen shares?
I don’t believe it is too late to invest in Appen, especially if you’re prepared to make a buy and hold investment.
I’m not alone with this view. According to a note out of Citi on Tuesday, the broker has upgraded Appen’s shares to a buy rating from neutral and lifted the price target on them by 20% to $28.04 following the acquisition of the Figure Eight business.
This price target implies potential upside of almost 27% for its shares over the next 12 months.
Figure Eight is a best in class machine learning software platform which uses highly automated annotation tools to transform unstructured text, image, audio and video data into customised high-quality artificial intelligence training data.
Citi believes that Figure Eight is a good fit for Appen and expects it to provide the technology and expertise required to allow the company to scale and improve its productivity materially.
However, as the Figure Eight business made a loss in FY 2018, the broker expects it to act as a drag on Appen’s performance this year. As a result, it has lowered its earnings estimates slightly for FY 2019.
After which, it believes the business will contribute strongly to Appen’s FY 2020 and FY 2021 results.
I think Citi makes a great point on Appen and believe it is a quality investment option. Its shares are trading at a premium to the market average, though. Whilst I believe its strong growth potential justifies this, they are still a reasonably high risk option and could be unsuitable for investors with a low tolerance for risk. It is also worth noting that Citi handled the capital raising to fund the acquisition of Figure Eight.
As well as Appen, I think these buy-rated growth shares would be great options in March.
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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 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.