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The Appen share price is down 16% in August: is it a buy?

Kenneth Hall
Share price plummet

Despite rocketing 100% higher so far this year, the Appen Ltd  (ASX: APX) share price has struggled in August amid a broader downturn in Aussie technology stocks.

So, while the Appen share price has plunged 16% lower in the last 2 weeks, are Appen shares cheap or will they fall further in 2019?

Why the Appen share price has plunged in August

The recent flare-up in the US–China trade war has hit ASX technology stocks hard, including the “WAAAX” stocks, which are made up of WiseTech Global Ltd  (ASX: WTC), Appen, Afterpay Touch Group Ltd  (ASX: APT), Altium Ltd  (ASX: ALU) and Xero Ltd  (ASX: XRO).

The ongoing tit-for-tat between the two global superpowers has spooked markets and seen technology and resources stocks, which are usually influenced by supply and demand factors out of China, plunge lower in August.

Among these has been Appen, which has seen its share price plummet 16% so far this month amid concerns its revenue streams could be impacted by the ongoing trade war.

Why has the Appen share price surged in 2019?

The one big factor that Appen has going for it is its proven history of outperforming market expectations and its own earnings guidance.

This has been a key reason why the Appen share price has surged 4,688% since its IPO, with seemingly constant earnings surprises and upgrades over the last few years.

Even just this year, the Appen share price has rocketed 100% higher largely driven by steady expansion, a strong domestic equities market and a solid full-year earnings result in February.

The Appen share price surged 20% in one day after posting FY18 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $71.3 million, up a whopping 153% on FY17 numbers.

Appen’s Content Relevance division was a strong contributor to the company’s earnings, with the company’s cornerstone delivered a 148% increase in revenue to $312.8 million. 

Are Appen shares a bargain or falling further?

While the Appen share price has fallen 16% in August to $25.57 per share, there are still growth prospects for the Aussie artificial intelligence and machine learning company.

Just yesterday, the Appen share price climbed 0.9% higher in signs that investors may have confidence in the company’s future growth prospects.

However, I think that Appen shares are still a little overheated given they are trading at 65x earnings, despite its $3.1 billion market cap.

I would personally be keeping my powder dry until after Appen’s half-year results release in August, especially given the company is still valued at the high end of its 52-week trading range.

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Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of WiseTech Global. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, Appen Ltd, and Xero. 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