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Why the Appen (ASX:APX) share price sank 25% in February

An ASX investor looks devastated as he watches his computer screen, indicating bad news
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The Appen Ltd (ASX: APX) share price was among the worst performers on the S&P/ASX 200 Index (ASX: XJO) in February.

Over the period, the artificial intelligence data services company’s shares lost 25% of their value.

This means the Appen share price has now fallen a disappointing 62% from its 52-week high.

Why did the Appen share price crash lower in February?

There were a few catalysts for the poor performance by the Appen share price in February.

One of those catalysts was weakness in the tech sector after bond yields widened and spooked investors.

In addition to this, a broker note out of Macquarie weighed heavily on the Appen share price.

Macquarie had previously been very bullish on the company but that all changed last month. In one fell swoop, the broker downgraded Appen’s shares from an outperform rating all the way down to underperform.

It made the move after its industry research pointed to tough trading conditions and increasing competition. Macquarie has concerns the latter could lead to a structural loss of market share.

Full year results disappoint

In addition to the above, the Appen share price came under further pressure following the release of its full year results for FY 2020.

For the 12 months ended 31 December, Appen posted a 12% increase in revenue to $599.9 million and an 8% lift in EBITDA to $108.6 million. This fell short of the market’s expectations.

It was a similar story with its guidance, with Appen forecasting constant currency EBITDA growth of 18% to 28% in FY 2021.

However, with Appen’s constant currency figure based on an Australian dollar averaging 69 U.S. cents, its reported growth will be much lower if exchange rates stay the same way. The Australian dollar is currently fetching 78 U.S. cents.

Where next for the Appen share price?

Given the uncertainty around the next 12 months, it will come as no surprise to learn that brokers are undecided on where the Appen share price is going next.

Ord Minnett recently upgraded its shares to a buy rating with a $24.75 price target. It feels its shares are great value after recent weakness. It notes that the company has strong long term growth potential thanks to industry tailwinds.

Whereas Macquarie has held firm with its underperform rating and cut its price target to $16.00 and Credit Suisse has a neutral rating and $20.00 price target.

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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 Appen Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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