Why has the Appen (ASX:APX) share price hit three 52-week lows in the last fortnight?

A perfect storm has arrived for Appen’s shares lately.

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The Appen Ltd (ASX: APX) share price has been on a slippery slope these last few weeks, down from a previous high of $9.48 on 23 September.

As they have trended down, Appen shares have subsequently set three new 52-week lows in the past 2 weeks – an ominous sign for shareholders.

Here’s what appears to be spurring on this slide into the abyss for the Appen share price.

Investors like earnings, earnings, earnings

To understand what’s behind this unfortunate performance for Appen’s shares we have to zoom out and take a look at what’s been leading the trend.

Appen shares tanked from a previous high of $13.82 in late August when the company released its FY21 earnings results.

In its report, the company recognised a 2% decrease in revenue and a 14.3% slide in EBITDA from the year prior.

This carried through its income statement, where net profits after tax (NPAT) slumped over 55% to just US$6.7 million.

Investors tend to reward companies who demonstrate strong earnings power and punish those who don’t by selling their shares.

We see the same happening from 25 August, where the Appen share price immediately slipped 27% to start off a string of what would be a series of new 52-week lows.

In fact, even though it has set a new 12 month low 3 times this past fortnight, since its earnings report the company’s shares have bottomed at new single-year low points 7 times to date.

Other factors weighing down the Appen share price

A recent spike in US Treasury yields is bad news for tech and growth type shares, as it ultimately impacts the valuations of these assets.

That’s because in most of these instances either the specific industry/sector, business, or product is expected to produce high cash flows out into the future, versus just around the corner.

So the higher the yield is on these US Treasury bonds, the lower a share’s valuation, and vice versa.

It also has a bearing on the market’s psychology, in that when yields hike up on government bonds – like the US Treasury bonds – investors tend to fly towards more stable, predictable asset classes.

For shares in general – but in particular tech and growth type shares – this stems a negative sentiment because the share market is typically seen as having more risk than the boring old bond markets.

So as US Treasury yields have popped up recently, this has had an impact on technology and growth type shares in general.

For instance, the S&P/ASX 200 All Technology Index (XTX) is leading the broad market’s loss this past month, slumping 7% in the red as of today.

That’s almost double the S&P/ASX 200 index (ASX: XJO)’s slip into the red of 3.8% in this time.

Appen share price snapshot

Taking a step back and analysing Appen’s share price over the long-term, the trend is no different – it is swimming in a sea of red this entire 12 months.

This year to date it has posted a loss of 65%, extending its loss in the past year to over 75%.

Both of these results are well behind the broad index’s return of around 25% this past year.

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The author Zach Bristow has no positions in any of the stocks mentioned. 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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