The Appen share price is up over 140% in 12 months: Is it still a buy?

Since its IPO in January 2015, the Appen Ltd (ASX: APX) share price has enjoyed four years of tremendous growth and has soared 140% in the last year alone.

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Since its IPO in January 2015, the Appen Ltd (ASX: APX) share price has enjoyed four years of tremendous growth. Starting with an offer price of 50 cents per share in their IPO, the Appen share price is now $22.11. This represents around 4,700% growth in the company's share price since its IPO.

Appen partners with technology, automotive and eCommerce companies and governments to provide data annotation and collection to create products and services for natural language and machine learning.

It's important to remember that not every small-cap technology stock will have this kind of success post-IPO. It is Appen's work in the growing artificial intelligence (AI) sector combined with strong EBITDA growth that's seen its share price soar.

What has driven strong growth in the Appen share price?

A few factors are driving strong growth in Appen's share price. Since its IPO, the company has posted strong EBITDA growth. In its FY18 results, the company reported revenue growth of 119% to $364.3 million. Most importantly, the company's net profit after tax grew by 148% to $49 million in FY18.

With a December year-end, we'll have a better understanding of how Appen is performing in FY19 when it releases its half-year results in August. There's also the possibility the company may issue an earnings upgrade before this time.

In mid-February, it was reported that Appen's forward order book totalled $165 million which equates to 45% of total sales in FY18. This is a strong indicator that the Appen share price could continue its strong growth rate.

The other core component that has been driving strong growth is its acquisitions of competitors. Appen acquired Leapforce, its US-based competitor in late-2017 for $105.3 million. This acquisition was financed with 80% cash and 20% equity. Appen offered a $5 million share purchase plan at the time of this acquisition.

Appen's latest acquisition is Figure Eight. Announced earlier this month, Appen will acquire the machine learning company for US$175 million upfront. In 2020, an additional payment of US$125 million will be due based on 2019 performance. The company had a capital raising of AU$285 million in early-March to acquire Figure Eight Technologies.

Is Appen still a buy?

Looking at Appen's strong earnings results and approximate 40x forward P/E estimate, the company still looks like a strong buy to me.

Being a technology stock, companies like Appen enjoy strong growth in risk on periods where there's more appetite for risk. In risk-off periods, however, the Appen share price will likely decline. For example, from August to October last year, the Appen share price declined by 35% as markets went through a risk-off phase.

Motley Fool contributor Nicola Smith has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of 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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