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The Appen share price just hit a record high: Is it too late to invest?

The Appen Ltd (ASX: APX) share price has been a strong performer again on Wednesday.

At one point today the shares of the global leader in the development of high-quality, human-annotated training data for machine learning and artificial intelligence were up over 5% to a record high of $35.56.

When Appen’s shares hit that level, it meant they were up 60% since the start of the year.

Why is the Appen share price at a record high?

Investors have been buying Appen’s shares this year after the release of a strong full year result and positive guidance for FY 2020 in February.

In respect to the latter, the company is expecting to deliver underlying EBITDA in the range of $125 million to $130 million this year. This represents a 23.8% to 28.7% increase on FY 2019’s underlying EBITDA of $101 million.

Pleasingly, since February, Appen has been able to reaffirm this guidance twice despite the pandemic. The first time was in the middle of April and the second time was as recently as the end of May at its annual general meeting.

This is quite the opposite of fellow market darling Altium Limited (ASX: ALU), which has made a series of gentle downgrades to its guidance this year because of the pandemic.

How is Appen performing?

At its annual general meeting, Appen spoke positively about current market conditions. And although it notes that there has been a global slowdown in digital ad spending, this has had a minimal impact on its major customers to date.

In fact, demand for its services has been growing strongly. So much so, year-to-date revenue (including any orders in hand for delivery to customers) came to $350 million as of May.

Appen revealed that year-to-date revenue as at May 2020, including any orders in hand for delivery to customers, amounted to around $350 million. This compares favourably with its total revenue of $536 million for the 12 months to 31 December 2019.

It also advised that it is continuing to strengthen its market position through continued investment in technology. It expects this to support it long-term growth trajectory.

Should you invest?

Although its shares are certainly not cheap at 40x estimated FY 2021 earnings, I still see value in them for long term-focused investors.

This is due to the expected growth of the artificial intelligence and machine learning markets and its important position inside them.

I expect demand for its services to increase materially over the next decade and underpin strong earnings growth that ultimately justifies the premium its shares trade at today.

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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 Altium. 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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