The Appen Ltd (ASX: APX) share price has become a shell of its former self. From a superstar performer in the ranks with leading ASX 200 tech shares such as Afterpay Ltd (ASX: APT) and Xero Ltd (ASX: XRO), to losing more than 50% of its value since August 2020.
Despite its weaker earnings and shocking share price performance, analysts at Bell Potter think that the Appen share price is still worth holding.
Imahge source: Getty Images
The Appen share price nosedives on weak earnings
Just when you think things couldn't get worse, shares in the data solutions provider dived last Wednesday on poor FY20 earnings. At the $16.50 level, this marks a 60% slump since its August 2020 record-all time high and brings its shares to a 2-year low.
After running the ruler for Appen's full-year earnings, the company's underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) of $108.6 million was close to Bell Potter's forecast of $109.0 million.
Revenue of $599.4 million was 6% below the broker's forecast of $637.4 million, but a higher-than-forecasted EBITDA margin made this up.
Looking ahead, Appen provided a forecast FY21 underlying EBITDA of $120 million to $130 million. This was well below the broker's forecast of $145.8 million. The company cited year-to-date orders in hand of $240 million (vs. $210 million a year ago) and that "1H21 earnings growth will be impacted by the near-term challenges, a greater skew of timing of project delivery to 2H21 and the lower pcp cost base".
As a result, Bell Potter downgraded its 2021 and 2022 earnings per share (EPS) forecasts by 23% and 26%. It now forecasts underlying EBITDA in 2021 to be $119 million, just below the guidance range.
Appen share price rated as a hold
Bell Potter maintains a hold recommendation for Appen shares with a 12-month price target of $19.50. This represents an upside of approximately 17.50% compared to its price at the time of writing. The broker points to the company's redeeming factors, which include its long-term growth track record and strong customer relationships.
Appen was established in 1996 and has a long track record of revenue growth with strong margins. In 2020, the company recorded revenue and underlying EBITDA growth of 12% and 8%, respectively.
The key competitive advantage of Appen is the longstanding relationships it has with many of its customers. The majority of revenue is from repeat customers as they update and upgrade their products.
