Appen Ltd (ASX: APX), the data services and language technology company, has seen its share price soar 43% over the past 2 weeks on the back of a strong earnings result and a significant upgrade to its full year earnings guidance.
APX is seeing significant increased demand for its high quality data for machine learning-based product development. According to the company, its artificial intelligence and machine learning capabilities have grown significantly on the back of superior quality data and data interpretation abilities. Clients of APX use these developments for training and continuous product/service improvement needs.
According to CEO, Mark Brayan, “APX helps major players build products that have a linguistic component, such as search engines and anything with voice technology, like Apple’s Siri.” “Search and social media relevance has underpinned the growth of the business.”
At UGC, our research indicates that with the development of big data analysis, smart homes, cars, offices and the explosion of the Internet-of-Things to come, the need for high quality linguistics technology is unlikely to be a trend that ends anytime soon.
Following the result the company now expects full year earnings before interest, tax, depreciation and amortisation (EBITDA) growth of between 40% to 50% compared to last years result.
The company has seen a sharp increase in monthly revenue from both existing and new clients as well as better margins on the back of its new projects.
Overseas expansion has also been an important component of APX’s growth and they continue to work on identifying new potential international partners to fuel further growth.
We first recommended APX to clients of UGC in the middle of 2016, just after the share price broke out of a 6 month flat base. Today, we expect the company to generate a greater than 40% Return on Assets and 50% Return on Equity. It has next to no debt and approximately $39 million in cash. It trades on a forecast Price-to-Earnings (P/E) ratio of 24x, but with earnings expected to grow by 45% by years end, trades on a Price-to-Earnings Growth (PEG) ratio of just 0.53, which indicates significant further potential share price upside if the company meets its guidance.
APX is a great example of a Quality company, representing Value and being in the early stages of a new up-Trend.
If you want to know which stocks we’re buying today that have huge upside potential, contact United Global Capital today for a no cost, no obligation consultation on 03 8657 7640 or email [email protected] to learn about our Quality, Value, Trend (QVT) investment selection methodology.
The information contained in this article is General in nature and has been prepared without taking into account your objectives, financial situation and needs. When assessing any investment you should also consider that past performance is not a reliable indicator of future performance.