Is Appen worth $38 per share?

We examine why Macquarie analysts are bullish on Appen's prospects.

Appen share price: a long-term success story

Over the long-term – artificial intelligence and machine learning company Appen (APX) – has proven itself to be a resounding success story.

Over the last five years, the Appen share price has risen close to 5,000%. For reference, in June 2015 APX traded for just 67 cents, today it trades over $33 per share on a market capitalisation of $3.95 billion.

This significant share price growth over the medium-term has been underpinned by solid fundamentals and a set of spectacular growth metrics. As part of its most recent Annual General Meeting (AGM), Appen's CEO Mark Brayan, pointed out that over the last five years, the company has achieved an impressive five year revenue compound annual growth rate (CAGR) of 59% and earnings (EBITDA) compound annual growth rate of 64%.

Elsewhere, as part of the AGM, the company also took the chance to reiterate its strong performance in 2019, noting that it achieved 2019 revenues of $536 million (+47%), underlying earnings (EBITDA) of $101 million (+42%) and underlying EBITDA margins of 18.8%.

Why Macquarie analysts are bullish

Macquarie analysts this week initiated coverage on Appen – slapping a Buy rating and a 12-month price target of $38.00 per share on the fast-growing company.

Overall, Macquarie analysts believe that Appen is well positioned to sustain its market leading position as well as benefit from strong growth in the global artificial intelligence market.

‘We see the risk/reward skew as favourable, given industry tailwinds and Appen’s position within the broader ecosystem,’ Macquarie analysts said.

Looking forward, Macquarie is currently forecasting Appen’s revenue will hit $715.6 million in CY20, $896.0 million in CY21 and $1,115 million in CY22. On the bottom-line, the investment bank’s analysts expect Appen’s earnings (EBITDA) to come in at $136.0 million in CY20, $174.7 million in CY21 and $223.0 million in CY22.

Though bullish on the stock overall, the investment bank consider Appen's concentrated customer base, its case-by-case focused 'revenue model' and its independent contractor workforce, as some of the key risks for the company.

Mind you, while those risks are indeed present, in-line with the company's market leading position, Macquarie analysts ultimately conclude that ‘Appen presents an efficient, flexible service that its core clients are unlikely to subvert, with its scale, platform and functionality creating strong barriers in an essential part of the AI supply chain.’

How to trade Appen

What do you think: are you bullish or bearish on Appen’s prospects? Trade accordingly. For example, you can trade Appen shares and other ASX-listed stocks – both LONG and SHORT – through IG’s world-class trading platform now.

To buy (long) or sell (short) Appen with CFDs, follow these simple steps:

  1. Create an IG Trading Account or log in to your existing account
  2. Enter ‘Appen’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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