The Appen Ltd (ASX: APX) share price has been a very positive performer on Friday thanks to improving sentiment in the tech sector.
In afternoon trade, the artificial intelligence (AI) data services company’s shares are up 7% to $14.06.
This means the Appen share price is now up 25% since this time last month.
Can the Appen share price climb even higher?
According to one leading broker, the Appen share price could have peaked for the time being.
This morning Bell Potter retained its neutral rating and trimmed its price target by 5.3% to $13.50.
Based on the current Appen share price, this implies potential downside of 3.5% over the next 12 months.
What did Bell Potter say?
Bell Potter has concerns over Appen’s long term growth, believing that it won’t be as strong as it was previously expecting. In addition to this, it doesn’t see any short term catalysts on the horizon that would drive a rerating of the Appen share price.
However, one positive is that the broker is expecting Appen to deliver on its guidance in FY 2021.
It explained: “We have updated and adjusted our Appen forecasts for the change in reporting currency from AUD to USD. While not a like-for-like comparison, there is little change in our revenue forecasts but modest upgrades in our underlying EBITDA and NPAT forecasts. We now forecast underlying EBITDA of US$84.7m in 2021 which is consistent with the guidance range of US$83-89m.”
This growth is expected to be heavily weighted to the second half. “We also forecast a large earnings skew to the second half this year with forecast underlying EBITDA in 1H/2H2021 of US$32.8m/US$51.9m which is also consistent with guidance,” the broker added.
After which, Bell Potter is forecasting “mid teens growth in underlying EBITDA in 2022 and 2023 which is driven by high single digit to low double digit top line growth and margin improvement through the cost cutting enacted in 2021.”
However, with its shares at 35x estimated FY 2021 earnings, it feels its shares are now fully valued based on these forecasts.