Is the Appen (ASX:APX) share price in the buy zone?

The Appen Ltd (ASX: APX) share price has been among the worst performers on the ASX 200 in 2021.

Since the start of the year, the artificial intelligence data services provider's shares are down a disappointing 61% to $9.95

This compares to a gain of 11% by the ASX 200 index.

Is the Appen share price a bargain buy?

Despite the weakness in the Appen share price in 2021, the team at Bell Potter don't believe investors should be rushing in to invest.

According to a recent note, the broker has maintained its hold rating and cut its price target to $11.50.

Based on the current Appen share price, this price target implies potential upside of 15% over the next 12 months.

What did the broker say?

Bell Potter was disappointed with Appen's performance in the first half of FY 2021 and notes that it has downgraded its full year guidance. Though, it acknowledges that the latter reflects management's decision to invest in its newly acquired Quadrant business.

The broker commented: "Appen downgraded its 2021 guidance from underlying b/w US$83-90m to b/w US$81- 88m. The downgrade was driven by "planned investment in Quadrant". The company also added it expects the result to be at the low end of the range due to "ad-related project impacts". Year-to-date revenue plus orders in hand at August was c.US$360m which suggests full year revenue around US$455m based on the 2020 ratio."

In light of this, the broker has downgraded its earnings estimates.

It said: "We have downgraded our underlying EBITDA forecasts by 4%, 5% and 7% in 2021, 2022 and 2023. The downgrades have been driven by modest reductions in our revenue forecasts (i.e. 1-2%) and reductions in our underlying EBITDA margin forecasts."

And while the broker is now forecasting underlying EBITDA of US$80.9m in 2021, which is at the low end of Appen's guidance range, it does have a few concerns that this will be met. The broker notes that this estimate assumes a "strong 2H2021 underlying EBITDA result of US$53.2m (vs US$27.7m in 1H2021)."

As a result, Bell Potter doesn't appear to believe the risk/reward on offer with the Appen share price is sufficient to invest at present.