Why the Appen share price could be a buy today

The Appen Ltd (ASX: APX) share price is up nearly 4,000% in 5 years – but should you buy before its 25 February earnings report?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

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.

More on Technology Shares

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Five happy friends on their phones.
Share Market News

Goldman Sachs says these ASX tech stocks can rise 18% to 30%

The broker sees big returns on offer from these shares.

Read more »

A guy helps a girl lift a couch, both are laughing.
Technology Shares

3 of the best ASX tech shares to buy and hold until 2030

I think these stocks have exciting futures.

Read more »

A young woman uses a laptop and calculator while working from home.
Technology Shares

If I'd put $5,000 in Block shares 5 months ago, here's what I'd have now

Was it a good idea to invest in this payments stock five months ago?

Read more »

Close up of a sad young woman reading about declining share price on her phone.
Technology Shares

Why is the Brainchip share price sinking over 7% today?

What's going on with this tech stock on Wednesday?

Read more »

woman working on tablet
Technology Shares

Missed out on Nvidia? My best ASX tech stock to buy and hold

Do you have FOMO after the US chip maker's share price rocketed? Here's an Aussie company worth backing instead.

Read more »

Three businesspeople leap high with the CBD in the background.
Technology Shares

Guess which ASX small-cap stock is rocketing 45% on 'pivotal moment'

Investors have responded very positively to an announcement.

Read more »

A man looking at his laptop and thinking.
Technology Shares

Why are these ASX tech shares getting smashed today?

Owners of these two stocks are missing out today.

Read more »