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Why the Appen share price could be a buy today

The Appen Ltd (ASX: APX) share price has rocketed 3,882.35% higher in the last 5 years. Can it go further?

Why the Appen share price has rocketed higher

Appen is a global leader in the development of high-quality, human annotated datasets for machine learning and artificial intelligence (AI).

The Aussie tech group is also a member of the “WAAAX” shares alongside the likes of Afterpay Ltd (ASX: APT) and Xero Limited (ASX: XRO).

It’s hard to stand out as a top ASX growth stock when compared to some of those names, but that’s exactly what Appen has done.

Strong financial results and consistent outperformance have been key to the Appen share price growth.

Appen increased its FY18 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) by 153% to $71.3 million. The group expects to deliver underlying EBITDA in the range of $96 million to $99 million for FY19, which represents year-on-year growth of 34.6% to 38.8%.

The key to the strong earnings profile has been consistent expansion and improving industry uptake. Companies are increasingly turning to AI and machine learning to improve their systems and gain a competitive edge.

The Appen share price reflects this break-neck expansion and has now surged more than 100% since the start of 2019.

Why Appen could be a good buy today

The Appen share price trades at a price-to-earnings (P/E) multiple of 64.68 times. That’s an eye-watering number for a growth stock with a $3.28 billion market capitalisation.

For context, Nine Entertainment Co. Holdings Ltd (ASX: NEC) has a $3.20 billion market cap and trades at a P/E of 12.37 times.

But if there’s one thing that Appen has proven it can do well, it’s outperforming in the earnings season.

Fellow WAAAX member Altium Limited (ASX: ALU) is set to report on Monday with Appen scheduled for 25 February.

I suspect Appen can put US–China trade war concerns behind it and deliver another strong earnings report.

If that proves to be true, I think the current $27.08 Appen share price will look like an absolute bargain.

Here are 3 more ASX dividend shares that I'll be keeping a close eye on this month.

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Kenneth Hall 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. The Motley Fool Australia owns shares of Altium, Appen Ltd, and Xero. The Motley Fool Australia has recommended Nine Entertainment Co. Holdings Limited. 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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