Here’s what happened to the Appen (ASX:APX) share price in May

This former market darling tested investor nerves in May…

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It certainly was an eventful month for the Appen Ltd (ASX: APX) share price in May.

During the month, the artificial intelligence (AI) data annotation products and solutions provider’s shares lost 14% of their value.

This was actually a decent result, as the Appen share price was down as much as 32% month to date at one stage during the month.

Why was the Appen share price under pressure in May?

The Appen share price came under significant pressure early on in the month following the release of a presentation which provided colour on industry conditions.

Although management spoke positively about its position in the industry, it also revealed that its customers were changing the ways in which they develop projects. This has resulted in changing data volumes on a handful of large projects, impacting Appen’s revenue.

This, and management’s failure to comment on its guidance for FY 2021, spooked the market and sent its shares crashing lower.

The rebound

In response to this, later in the month Appen announced that it would be restructuring its business to align to its product-led growth strategy and distinct customer propositions.

This will see the company operate with four customer-facing business units – Global, Enterprise, China, and Government. Management expects the changes will provide greater visibility of the drivers and performance of the business. And judging by the significant rebound in the Appen share price following this update, the market appears to agree.

Also going down well with investors was management finally commenting on its guidance for FY 2021.

As it turns out, there was nothing to fear here. It has reiterated its guidance and is forecasting underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of US$83 million to US$90 million in FY 2021. This represents constant currency growth of 18% to 28% year on year.

Where next for its shares?

According to a note out of Ord Minnett from late last month, it believes there is significant upside for the Appen share price over the next 12 months.

The broker currently has a buy rating and $24.75 price target on its shares, which implies potential upside of 90%.

All in all, shareholders will be hoping this broker is on the money and the Appen share price has a much better month in June.

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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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