The Appen (ASX:APX) share price just hit a 3-year low. Here’s why

Here’s what could be pushing Appen to a 3-year low…

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The Appen Ltd (ASX: APX) share price is continuing its downward trend on Wednesday.

Unfortunately for shareholders, that means the company has hit a milestone that has not been seen since early 2018. At the time of writing, shares in the data annotation company are trading 2.74% lower to $8.87. This means that since the company’s peak in August 2020, the share price has now fallen by more than 78%.

Let’s take a look at what could be impacting the company’s share price today.

Bond yields dunk on ‘riskier’ investments

While the full reasoning behind the prolonged selling pressure in the Appen share price is likely multi-faceted, there are a couple of widespread factors.

Firstly, the market as a whole is experiencing negative sentiment today. The S&P/ASX 200 Index (ASX: XJO) alone is down 1.2%, which is a sizeable single-day decline. This is in line with the 2.04% haircut on US markets overnight, with the S&P 500 Index taking a plunge.

But why are the markets falling?

There are a couple of reasons… treasury bond yields climbed higher overnight and US Federal Reserve chair Jerome Powell received a scathing review.

As bond yields rise investors start to dial down the risk on their investments. This is because if interest rates are to rise, people would be less prone to taking a greater risk with equities when a savings account could provide a reasonable return.

Furthermore, Powell’s less than flattering review by Senator Elizabeth Warren left people concerned over the re-election of the Fed chair. The consequence is reduced predictability of the United States monetary policy. Indeed, uncertainty often results in investors taking some risk off the table.

In the case of the Appen share price, it appears to be a bystander caught in the collateral fallout. Often, investors are more prone to selling down tech names during uncertainty. In turn, the company’s share price performs worse than other ‘blue chip’ shares.

Other weighing factors on the Appen share price

It could also be the case that investors are still negative on the company following its lacklustre FY21 earnings report.

Once commanding a price-to-earnings (P/E) ratio in excess of 50, Appen disappointed its shareholders with a 55.1% fall in net profit after for the year. Evidently, it is difficult to maintain such a rich P/E ratio if earnings aren’t growing at a rate to support the premium.

Following the Appen share price decline, the company now trades on a P/E of 28.8.

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Motley Fool contributor Mitchell Lawler owns shares of Appen Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Appen Ltd. The Motley Fool Australia owns shares of and has recommended Appen Ltd. 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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