Appen Ltd shares rocket on bumper profit growth

The Appen Ltd (ASX:APX) share price has rocketed 10% to an all-time high of $4.74 following the release of a stunning first-half result. Is it time to invest?

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The Appen Ltd (ASX: APX) share price has rocketed 10% to an all-time high of $4.74 in early trade after the data solutions and services company announced its half-year results.

Key highlights from the half include:

  • Total first-half revenue increased 39% on the prior corresponding period to $74.1 million.
  • Earnings before interest, tax, depreciation, and amortisation (EBITDA) increased 44% to $12.8 million.
  • EBITDA margin improved from 14.5% in the second-half of FY 2016 to 17.2%.
  • First-half net profit after tax rose 50% to $8.1 million.
  • Earnings per share of 8.2 cents.
  • Fully franked interim dividend of 3 cents per share.
  • Outlook: EBITDA at the upper end of 40% to 50% growth guidance.

Whilst a strong result was expected by the market following the company's guidance upgrade earlier this year, today's release more than lived up to expectations.

The catalyst for the strong growth was the company's Content Relevance segment. Revenue in the segment grew 52% to $53.3 million thanks largely to demand from the search and social media markets.

According to the release, companies in these markets are increasingly deploying machine learning technology for more personalized and relevant services.

Furthermore, the company benefitted from its decision to work in multiple data formats. These include text, audio, image, and video.

The company's Language Resources segment delivered a mixed first-half. While revenue rose 13% to $20.7 million, EBITDA increased just 1.3% to $7.5 million.

However, this was due largely to unfavourable currency movements. In constant currency revenue was up 17% and EBITDA would have increased 8%.

Should you invest?

At approximately 29x annualised earnings I feel it is fair to say that Appen's shares are certainly not cheap.

But considering the company's current growth profile and the ever-increasing demand for machine learning and artificial intelligence, I believe it more than justifies the premium.

In my opinion Appen is up there alongside Altium Limited (ASX: ALU) as one of the most outstanding tech shares on the Australian share market right now.

In light of this, I would class it as a fantastic long-term buy and hold investment.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Altium and Appen Ltd. 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 Bruce Jackson.

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