The Appen Ltd (ASX: APX) share price may have lost some of its WAAAXing glow. Appen shares are trading for $25.44 this afternoon – a full 20% lower than what investors were paying at the end of July. So is this a buy the dip opportunity for a stock that has been priced to perfection for most of 2019? Let's have a look.
What does Appen do?
Appen is one of the high-growth tech stocks collectively referred to as the WAAAX group. WAAAX shares like Afterpay Touch Group Ltd (ASX: APT) and Xero Ltd (ASX: XRO) have been lighting up growth investors' portfolios in 2019, with all five companies bagging double-digit share price rises since January. Appen itself started off 2019 at $14.94 and until late July was looking at a YTD gain of 114% – and even on today's prices, the stock is still up 70% for the year so far.
Appen specialises in providing human-annotated datasets that aid in the development of artificial intelligence and machine learning. Basically, it researches how humans speak and interact with both each other and technology, bundles the data and sells it to tech companies to improve their AI services. It's companies like Appen that help Apple and Alphabet (Google) teach their virtual assistants like Siri how to speak to us. As you can imagine, this is a high-octane growth area and Appen is a leader in it.
Why has Appen's share price crashed?
Put simply, investors didn't like the earnings for the 2019 financial year that Appen reported last week. Despite showing revenue growth of 60% and profit growth of 67% over the previous year, investors immediately dropped the stock 11% in a day, down to $24.27 a share. The share price has since recovered slightly to today's levels, but APX shares remain at a hefty 20% discount to a month ago.
So is it time to buy Appen shares? A Foolish takeaway
That depends on how much you like growth stocks. By any conventional measure, Appen shares are still rather expensive – this is a company valued at $3.08 billion that just reported a profit of $29.6 million, which gives Appen stock a price-to-earnings ratio of around 60. Considering the market average is currently around 17.5, I personally consider Appen shares still too expensive to buy today. But I might be looking silly in a few months if this stock's history is anything to go by.
