The Appen Ltd (ASX: APX) share price was absolutely smashed on Wednesday.
The artificial intelligence (AI) data services company's shares sank 28% to $2.29.
Investors were hitting the sell button in a panic after management warned that its revenue and profits would be down "materially" in FY 2023.
This means the Appen share price is now down a massive 65% since this time last year.
Is the Appen share price weakness a buying opportunity?
Often when bad news hits like this, a company's share price can end up being oversold, creating a buying opportunity for investors.
However, as far as analysts at Bell Potter are concerned, the Appen share price has not been oversold and could still fall further from here.
According to a note out this morning, the broker has reiterated its sell rating with a lowered price target of $2.05.
This implies potential downside of 10.5% from current levels over the next 12 months. Though, it may not take that long to get there based on recent selling!
What did the broker say?
Bell Potter was understandably very disappointed with Appen's update and has been forced to take an axe to its earnings estimates. It commented:
We have downgraded our 2023, 2024 and 2025 revenue forecasts by 17%, 18% and 18%. We now forecast an underlying EBITDA loss of US$(23.2)m in 2023 – previously we forecast positive US$14.3m – and have downgraded our underlying EBITDA forecasts in 2024 and 2025 by 49% and 30%. We now forecast Appen utilises some of its A$20m debt facility in 2H2023 and assume there is some increase in the size of the facility when the company refinances later this year. This should avoid any need of a capital raising and we have not assumed any in our forecasts.
The broker also explained why it thinks its shares are still not good value despite the crash. It said:
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 rolled forward our EV/EBITDA valuation – largely because underlying EBITDA will be negative this year – and have modestly increased the multiple we apply from 11x to 12x due to the positive cost out story but only relatively modest level of profit. We have also reduced the TGR we apply in the DCF from 4.0% to 3.5%. The net result is a 9% decrease in our PT to $2.05 and we maintain our SELL recommendation.
