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Appen share price up 99% since March. Is it still in the buy zone?

The Appen Ltd (ASX: APX) share price has rallied strongly over the past few months. It fell from $27.18 in mid February to $17.14 in mid March, during the early phase of the coronavirus pandemic. However, the Appen share price has since steadily climbed and is now well beyond even its February levels. Despite a few ups and downs along the way, the Appen share price is now trading at $34.17. That’s a whopping increase of 99% since March.

Although the company was partially impacted by coronavirus, so far it appears to have come through the pandemic relatively unscathed.

So, is the Appen share price still a buy?

What does Appen do?

Let’s first take a recap of the Appen business model.

Appen is global leader in providing data for use in machine learning and artificial intelligence (AI). This includes speech and natural language data, image and video data. It also includes text and alphanumeric data, and data to improve search and social media engines.

In more basic terms, Appen studies how people speak and interact with each other and with technology applications. It then packages the data, and sells it on to tech companies to improve their AI applications. For example, Appen assists Apple and Google in training their virtual assistants like ‘Siri’ so they can better interact with their audiences.

As well as servicing major tech companies, Appen also works across a range of industries including the automotive and government sectors.

Continuing to grow at a rapid pace

Appen continues to experience strong demand, especially from many of the world’s largest technology firms. This has translated into very high revenue growth, assisted by recent acquisitions.

Appen’s full-year financial results for 2019 delivered a 47% increase in total revenue to $536 million, while its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 42% to $101 million.

Appen’s earnings base has remained fairly resilient in the face of the coronavirus pandemic. Its staff continue to work efficiently and successfully in remote locations, driven by the company’s at-home ‘crowd’ base of employees spread across the globe.

Appen also has a strong balance sheet with cash in excess of $100 million. Although its current investment pipeline may soften a little, the company expects negligible impact from the pandemic over the months ahead.

Is the Appen share price in the buy zone?

I believe that Appen is very well placed to see continued strong growth over the next five years. This growth will be driven by the rapidly rising demand for AI and machine learning products globally as well as Appen’s entrenched market position.

I’m confident this is likely to lead the Appen share price to outperform the S&P/ASX 200 Index (ASX: XJO) during this period.

Despite a strong share price rise since March, Appen is an ASX tech share that I would be happy to hold for at least the next five years and beyond.

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Motley Fool contributor Phil Harpur owns shares of Appen Ltd. 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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