It has not been a good 12 months for the Appen Ltd (ASX: APX) share price.
Since this time last year, the struggling artificial intelligence data services company's shares are down 75%.
Things are even worse if you extend the timeline further out.
In 2020, the Appen share price was fetching around $40.00. So, with its shares currently changing hands for 61 cents, that's a 98% fall from grace.
The big question, though, is whether Appen's shares are now in the buy zone. Let's see what one broker is saying.
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Is the Appen share price good value?
According to a note out of Bell Potter, its analysts believe investors should be keeping their powder dry for the time being.
In response to its latest capital raising and trading update, the broker has retained its hold rating and cut its price target from $1.70 down to 65 cents.
What did the broker say?
Bell Potter has downgraded its revenue forecasts for the coming years but continues to forecast a small EBITDA profit in 2024. It said:
We have downgraded our revenue forecasts by 6%, 10% and 12% in 2023, 2024 and 2025 due to the continuing challenging conditions and we now assume a more modest recovery in 2024 and 2025. There is not much change in our forecast underlying EBITDA loss in 2023 – actually a modest improvement – but we downgrade our 2024 and 2025 forecasts by 41% and 31% on the back of the lower revenue forecasts and despite the additional cost reductions. We do, however, continue to forecast a return to positive EBITDA in 2024 – albeit only modest – which is consistent with the company's objective to return to profitability.
Its forecasts are for EBITDA of -$25.5 million in FY 2023, $3.4 million in FY 2024, and then $10 million in FY 2025.
The broker concludes:
We have updated each valuation used in the determination of our price target for the earnings changes and also reduced the multiple we apply in EV/Revenue from 1.0x to 0.5x (due to the continuing challenging conditions) and increased the WACC we apply in the DCF from 10.7% to 10.9% (due to an increase in the risk free rate). The net result is a 62% decrease in our PT to $0.65 which is a modest premium to the share price so we maintain the HOLD. We note the cash position post this raise should be around US$40m which looks sufficient with a likely return to profitability in 2024.
