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Is the Appen share price in the buy zone?

James Mickleboro
Appen shares

Despite trading notably lower than its 52-week high, the Appen Ltd (ASX: APX) share price has been an impressive performer in 2019.

Since the start of the year the global leader in the development of high-quality, human annotated datasets for machine learning and artificial intelligence has seen its shares race a massive 86% higher.

Why is the Appen share price up 86% this year?

Investors have been buying Appen’s shares this year thanks to its FY 2018 result and its positive performance in the current financial year.

In FY 2018 Appen delivered underlying EBITDA of $71.3 million, which was up 153% on the prior corresponding period.

This strong growth was the result of the accelerating AI market and the high and growing demand for quality training data. The successful acquisition of the Leapforce business also supported its growth during the 12 months.

Pleasingly, Appen’s strong form has continued in FY 2019. Last week the company upgraded its guidance following stronger than expected demand for its Content Relevance services.

Appen was expecting underlying EBITDA to be between $85 million and $90 million, an increase of 19% to 26.2% on FY 2018’s result. But this stronger demand means it is now forecasting underlying EBITDA in the range of $96 million to $99 million. This represents year on year growth of 34.6% to 38.8%.

Furthermore, this guidance remains subject to currency movements. And based on current exchange rates, management believes a further $1 million to $1.5 million could be added to its underlying EBITDA.

Is it too late to invest?

I don’t believe it is too late to buy Appen’s shares. In fact, I think they are arguably the best value option in the WAAAX group.

I’m not alone in thinking this. A note out of E.L. & C. Baillieu reveals that its analysts have retained their buy rating and lifted the price target on its shares to $29.32.

It expects EBITDA of $99 million and earnings per share of 54.8 cents in FY 2019. After which, it has forecast EBITDA of $128.4 million and earnings per share of 70.9 cents in FY 2020.

The latter means its shares are changing hands at approximately 34x estimated FY 2020 earnings. This is notably cheaper than peers Afterpay Touch Group Ltd (ASX: APT) and WiseTech Global Ltd (ASX: WTC).

The post Is the Appen share price in the buy zone? appeared first on Motley Fool Australia.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of Appen Ltd and WiseTech Global. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019