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.
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