The Appen Ltd (ASX: APX) share price has been on a rollercoaster ride this month.
After rocketing higher briefly last week following a takeover approach (which was withdrawn hours later), the artificial intelligence data services company's shares are now back where they started the month.
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Where next for the Appen share price?
According to a note out of Bell Potter, its analysts believe the Appen share price is trading at around fair value.
The note reveals that the broker has retained its hold rating and cut its price target to $6.50.
This implies modest potential upside of 3% from the current Appen share price of $6.30.
What did the broker say?
Bell Potter appears to have been disappointed with Appen's trading update which accompanied its takeover proposal announcement. In response, the broker has downgraded its earnings estimates for the coming years. It said:
We have downgraded our EPS forecasts by 5%, 5% and 4% in 2022, 2023 and 2024. The downgrades have been driven by revenue downgrades of c.1% and reductions in our margin forecasts.
Anything else?
Its analysts also highlight that they have changed their valuation method now. Rather than using peer multiples of the likes of Infomedia Limited (ASX: IFM) and TechnologyOne Ltd (ASX: TNE), Bell Potter believes the Appen share price should be partly valued on a PE ratio of 16x.
We have updated each valuation used in the determination of our price target for the earnings changes as well as market movements and time creep. We have also elected to move away from the comparable companies we were using to determine an appropriate multiple in the relative valuations – like Infomedia and Technology One – given the contrast in operating performance.
This ultimately led to its price target of $6.50. Which, given the limited upside from where the Appen share price now trades, means it is a hold for the broker.
