The Appen Ltd (ASX: APX) share price has come under pressure again on Wednesday and dropped lower.
At the time of writing the shares of the global leader in the development of high-quality, human annotated datasets for machine learning and artificial intelligence are down 6% to $22.90.
This latest decline means that Appen’s shares have now shed over 28% of their value since peaking at $32.00 at the end of July.
Why is the Appen share price down 28% in just six weeks?
Some of this decline can be attributed to the whole tech sector coming under pressure this week after a spot of weakness on the Nasdaq index.
As well as Appen, the likes of Afterpay Touch Group Ltd (ASX: APT) and WiseTech Global Ltd (ASX: WTC) have tumbled lower over the last couple of days. This has dragged the S&P/ASX 200 Info Tech index down around 4.1% from the record high it made on Monday.
Also weighing on Appen’s shares has been its half year result in August.
Although the company delivered an impressive 60% increase in revenue to $245.1 million and a 67% lift in underlying net profit after tax to $29.6 million, comments relating to its recently acquired Figure Eight business may have spooked investors.
According to its investor presentation, Figure Eight’s annual recurring revenues (ARR) were lower than planned, leading to management revising its full year guidance for its ARR to $30 million to $35 million.
This will be an increase of 11.1% to 29.6% increase on FY 2018’s numbers, whereas growth of ~50-60% was previously expected from the business.
Whilst this is disappointing, I feel the share price weakness has created a buying opportunity for investors.
And I’m not alone. Brokers from both Citi and UBS have recently given Appen’s shares a buy rating with price targets of $32.99 and $30.00, respectively.
They both appear confident in the company’s outlook and UBS sees significant upside potential from the Figure Eight business despite its soft start. This is due to its exposure to the growing demand for artificial intelligence from governments, which is an area the Figure Eight business has a strong position in.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and WiseTech Global. 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.