Growth Focus: Appen Limited (APX)

by Patrick Taylor

Date of Data Capture: 11/02/2020


Classification: Software & IT Services

Current Price: $26.77

Market Capitalisation: $3.24 B

Forecast EBITDA Growth: 37.73%

Yield Estimate: 0.37%

Consensus Price Target: $28.79

# Covering Analysts: 8

Discount at Current Price: 7.55%

Price Target Trend (3-Month): Up-Flat -0.99%

Signal Timeframe: Monthly-Weekly-Daily

Trend Bias: Up-Flat / Long-Medium

Short-term: Positive-Neutral
Medium-term: Positive
Long-term: Positive

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Fast growing tech stock APX is emerging from a recent medium-term consolidation and looks likely to continue higher on strong performance, and forecasts for continued growth out to 2021.
• Strong sales and earnings data last year helped drive strong gains and while growth is expected to slow a little – it is set to remain robust going forward, driven by expanding sales and margins.
• Pricing reflects the rapidly expanding revenue numbers and it has been a year since the last minor pullback - we expect recent weakness to also be a favourable entry opportunity, with excellent positive momentum signalling here.
Support ($): 20.00, 22.00, 24.00 & 26.00.
Resistance ($): 28.00, 30.00, 32.00 & clear.


Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

If knowledge truly is powerful, then we are right to take a view on Appen Ltd (APX) as the artificial intelligence specialist moves higher into a potential new longer-term uptrend on strong performance and backed by very attractive forecasting.
Listed since the early stages of 2015, Appen provides data solutions services for technology clients across the globe with over 600 staff spread from the Asia Pacific to the UK and US. Some of the applications of their technology include digital assistants and chatbots, search engine recommenders, and systems for fraud protection. While there exists huge commercial scope for growth within the field of machine learning, there also exists a very significant governmental and state interest in developing AI technology and the efficiencies it offers.

To put this into perspective, the market of AI services was valued at $643M in 2016 and is projected to reach as much as $36B by 2025. That gives APX enormous potential for organic growth, already well-supported by the strong reporting figures of recent years, with sales earnings and margins increasing rapidly. Of particular note is the size and strength of earnings gains seen in the US market, which should remain a core focus for future growth.

Appen has been making a habit of upgrading its earnings guidance, and last reporting showed revenue up 60%, earnings up 81%, margins up 16% and profits up 67% - with forecasting showing solid expectations for similarly strident gains seen through to 2021. Despite the rapid rise of the share price, the stock remains under consensus price targets, which have been steadily increasing over the last 4 years. This favourable view is reinforced by a strong majority positive aggregate analyst sentiment, with no negative views at current levels.

Pricing history shows APX climbing dramatically higher since listing in early 2015, though this incredibly strong performance has been played out through a series of medium-term uptrends. In that time, there have been only intermittent consolidations, when the share price overtook the company’s considerable underlying momentum, ultimately providing fresh entries to those with the patience to wait for them.

Here we believe we have another opportunity with pricing falling from $32 to $20 during the second half of 2019, eventually moving up from its support base to break linear resistance just last month. With momentum building and signalling turning positive again, we are looking to follow the smart money into this world leader in artificial intelligence.


This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.

Subscribe to our Daily Newsletter?

Would you like to receive our daily news to your inbox?